US central bankers remained committed to raising interest rates further to quell rising prices, but agreed it would be appropriate to slow the pace of the hikes “at some point,” the US Federal Reserve said on Wednesday.
The central bank has raised the benchmark borrowing rate four times this year, including two massive 75 basis-point increases in June and last month, as it tries to cool demand and lower prices that have surged at the fastest pace in more than 40 years.
The aggressive moves took on more urgency after US annual inflation spiked to 9.1 percent in June.
Photo: Reuters
In the minutes of the Fed’s policy meeting last month, which produced a second massive rate increase of 75-basis points, Fed officials said it would take some time to bring “unacceptably high” inflation back down near the 2 percent goal.
Policymakers are trying to tread a narrow path and avoid pushing the world’s largest economy into recession, and many officials at the meeting cautioned that there is a “risk” the Fed could go too far.
Since the previous Fed meeting, financial markets have been cheered by hopes that a slowing economy would allow the central bank to dial back or even halt the rate hikes, especially after comments from Fed Chair Jerome Powell, who signaled that the rapid increases would eventually give way to more normal steps.
However, Fed officials have tried to dispel some of that excess optimism, stressing in speeches in the past few weeks that the central bank is committed to pursuing its battle on inflation.
Members of the US Federal Open Market Committee pointed to a recent decline and some signs that supply constraints have eased, which should work to bring down prices, the minutes showed.
However, they said falling oil prices “cannot be relied on” to lower overall inflation, adding that slowing demand would be a key factor in curbing price pressures.
Some officials warned against “complacency.”
Still, the rapid, aggressive moves by the central bank have started to have an impact, and while officials say the US economy should continue to expand in the second half of the year, “many expected that growth in economic activity would be at a below-trend pace,” the minutes said.
Many noted “some tentative signs” that job conditions have started to soften.
Last month, the world’s largest economy had nearly two job openings for every unemployed person in the labor force.
Meanwhile, the realization that monetary policy would likely stay restrictive undermined a sense of stock market optimism, pushing all three indexes on Wall Street down, with the tech-heavy NASDAQ taking the biggest hit, while the US dollar rallied and extended gains in Asia.
Asian traders appeared increasingly worried that the Fed would slip up as it tries to bring down inflation without causing another recession in the world’s biggest economy.
Taipei, Tokyo, Hong Kong, Sydney, Shanghai, Seoul, Wellington and Bangkok were down, although Singapore, Manila and Jakarta edged up.
“The key takeaway from these minutes would appear to show that there is little inclination on the part of anyone on the [policy baord] to even look at the possibility of rate cuts,” said Michael Hewson, an analyst at CMC Markets.
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