‘Ongoing’ rate hikes needed, 2 officials wanted 50-point hike

There’s no sign of a coming pause at the Federal Reserve.

Instead, officials appeared to remain steadfast in their commitment to raising interest rates to beat inflation, according to minutes from the central bank’s latest policy meeting released Wednesday.

“All participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives,” the minutes said. “Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time.”

The minutes, which are released with a three-week lag, showed a number of Fed members were concerned that financial conditions had eased and could require more rate hikes than thought.

“A number of participants observed that financial conditions had eased in recent months, which some noted could necessitate a tighter stance of monetary policy,” the minutes said. “Participants noted that it was important that overall financial conditions be consistent with the degree of policy restraint that the Committee is putting into place in order to bring inflation back to the 2% goal.”

Fed officials felt inflation is still “unacceptably high” and that while inflation data received over the past three months showed a welcome drop in the pace of monthly price increases, officials felt that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was coming down.

The minutes also said that “a few” participants favored raising the federal funds rate by 50 basis points at the Feb. 1 policy meeting, noting that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance.

Last week, both Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard said they favored a 50 basis point rate hike at the last meeting.

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Still, several participants noted the possibility that as consumers become more price sensitive, businesses might accept lower profit margins in an effort to maintain market share, which could reduce inflation temporarily. And nearly all members favored slowing the pace of rate hikes to evaluate the impact that existing hikes have had on the economy.

Officials viewed the job market as very strong, with several noting that mass layoffs at large tech companies merely followed overhiring during the pandemic and that the layoffs didn’t appear to be hurting the overall job market.

Officials see risks to the economy to the downside and thought it wouldn’t take much to tip into recession.

There was also extensive discussion over risks posed by higher interest rates. Several members discussed vulnerabilities to the financial system associated posed by higher interest rates, including the elevated valuations for commercial real estate, the susceptibility of some nonbank financial institutions to runs, and the effect of large, unrealized losses on some banks’ securities portfolios.

Although several participants noted that the Federal Reserve’s standing liquidity facilities could be helpful in addressing significant pressures in funding markets, should they arise, several participants also noted the challenges of addressing potential disruptions in U.S. core market functioning.

A few Fed officials thought the recent failures of companies involved in crypto finance have had a limited effect on the broader financial system, underscoring that it reflected the minimal extent of the crypto market’s connections to the banking system so far.