Fed officials divided over future interest rate increases, meeting minutes show

Some participants in July meeting said effects of tightening monetary policy too much 'could prove more substantial than anticipated'

Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington. AFP

Policymakers at the US Federal Reserve appear to be divided over future interest rate decisions, suggesting that pushing them too far could have a harsher impact on economic activity and unemployment than expected, minutes released from the central bank's most recent meeting showed.

Last month's decision to raise interest rates brought the benchmark rate to the target range of between 5.25 per cent and 5.50 per cent as part of the central bank's continued bid to tamp down on inflation.

The minutes from the July 28-29 meeting showed that “a couple of participants” indicated a preference for leaving rates unchanged or signalled they would support a proposal to do so.

Those who supported keeping rates steady “judged that maintaining the current degree of restrictiveness at this time would likely result in further progress towards the committee’s goals while allowing the committee time to further evaluate this progress”, the minutes read.

Some participants in the meeting said that there continue to be risks to US economic activity and the nation's unemployment rate, despite recent favourable economic data.

“These included the possibility that the macroeconomic effects of the tightening in financial conditions since the beginning of last year could prove more substantial than anticipated,” the minutes read.

Participants had also agreed that incoming economic data “would be valuable in determining the extent of additional policy firming that may be appropriate to return inflation to 2 per cent over time”.

They also noted that though the labour market remains tight, supply and demand was “coming into better balance”. Fed officials said further progress in supply-and-demand balance was needed.

The minutes appear to reflect public remarks made by Fed officials since July 29.

Philadelphia Fed President Patrick Harker said he thinks the central bank is at a point where it can keep rates steady “absent any alarming new data”, while Fed Governor Michelle Bowman expects additional increases are needed to bring inflation back down to the central bank's goal.

New York Fed President John Williams believes the central bank is close to where the peak interest rate should be, telling The New York Times the decision on whether or not to raise rates again is an “open question”.

What Fed officials have generally agreed on was the need to not cut rates too soon.

“Should we be at that point where we can hold steady, we will need to be there for a while. The pandemic taught us to never say never, but I do not foresee any likely circumstance for an immediate easing of the policy rate,” Mr Harker said.

Fed Chairman Jerome Powell at the time was non-committal when asked if July's interest rate increase would be the central bank's final one this year, telling reporters it would take a data-driven and meeting-by-meeting approach.

Economic projections released by the Fed in June forecast its federal funds rate would climb to 5.6 per cent by the end of 2023, meaning there would be room for one more rate increase this year if officials follow that path.

The Fed convenes for its next Federal Open Market Committee on September 19.