(Updates with minutes release)
By Howard Schneider and Michael S. Derby
WASHINGTON, Aug. 16 (Reuters) – Federal Reserve officials were divided on the need for more rate hikes at the July 25-26 US Federal Reserve meeting, with “some participants” citing risks to the economy of going too far pushing up rates even as “most” policymakers continued to prioritize fighting inflation, according to session minutes released Wednesday.
“Participants remained resolute in their commitment to bring inflation back to the…2% target,” said the minutes of a meeting in which Federal Open Market Committee policymakers unanimously agreed to raise the benchmark overnight interest rate to 5.25 %- Range of 5.50%. “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”
Still, voices of caution about the effects of continued monetary tightening seemed to play a more prominent role in the debate at last month’s policy meeting, an indication that disagreements at the Fed have deepened as policymakers weigh evidence that inflation is falling and the assess potential damage to jobs and economic growth if rates are raised higher than necessary.
For example, a “few” participants argued in favor of leaving rates unchanged in July.
The group also discussed “various risk management considerations that could affect future policy decisions,” the minutes said. While a majority viewed inflation as the main risk, “some participants noted that while economic activity was resilient and the labor market had remained strong, downside risks to economic activity and upside risks to the unemployment rate remained.”
“This included the possibility that the macroeconomic effects of the tightening financial conditions since the beginning of last year could prove larger than expected.”
Overall, the minutes said, Fed policymakers agreed that levels of uncertainty remained high and that future interest rate decisions would depend on the “total” of data coming in in the “next few months” to “help clarify to what extent the disinflation process has progressed”. continue” – a possible indication of a more patient approach to any further rate increases.
The July meeting came before the release of data showing key price measures fell this summer while fewer jobs were created.
Investors in contracts linked to the Federal Funds rate are betting heavily that the Fed will not raise its benchmark rate again during the current tightening cycle, and had a 90% chance as of Wednesday morning on the prospect of the central bank leaving interest rates. unchanged at the September 19-20 meeting. (Reporting by Howard Schneider; editing by Paul Simao)
