Federal Reserve officials indicated at their June meeting that inflation is moving in the right direction but not fast enough to warrant cutting rates, minutes released Wednesday showed.
“Participants confirmed that additional favourable data were needed to give them greater confidence that inflation was moving towards 2 percent in a sustained manner,” the meeting summary said.
Although the minutes showed that the 19 central bankers who participated in the discussion disagreed, with some even indicating they would raise rates if necessary, the meeting ended with voters on the Federal Open Market Committee leaving rates unchanged.
The Fed targets annual inflation of 2%, a level it has been above since early 2021. Officials at the meeting said the data has improved recently, but they want more evidence that will continue.
The meeting participants “emphasized that they did not expect it would be appropriate to lower the target for the federal funds rate until additional information was available that would give them greater confidence that inflation was moving toward the Committee's 2 percent objective on a sustained basis.”
During the meeting, policymakers also provided an update on economic forecasts and monetary policy for the coming years.
The FOMC “dot plot” showed a quarter percentage point cut by the end of 2024, down from the three indicated after the last update in March. While the dot plot indicated one cut this year, futures markets continue to price in two, starting in September.
In addition, the committee left its economic forecasts largely intact, although it lowered its inflation expectations for this year.
In discussions about how to approach monetary policy, the minutes reflected some differences of opinion. Some members noted that the reins would need to be tightened if inflation persisted, while others argued that they needed to be ready to respond if the economy faltered or the labor market weakened.
“Several participants noted that if inflation were to remain high or increase further, the target range for the federal funds rate might need to be raised,” the minutes said. “A number of participants noted that monetary policy should be prepared to respond to unexpected economic weakness.”
The minutes do not identify individual members or provide exact figures for the number of officials expressing particular positions. In Fed terminology, however, “a number” is considered more than “several.”
The review also noted that an “overwhelming majority” expected economic growth to “cool gradually” and that current policy is “restrictive.” That's an important term as officials consider how restrictive policy should be while curbing inflation and not causing unnecessary economic damage.
Since the meeting, officials have largely stuck to a cautious script that emphasizes data dependence rather than forecasts. However, there are indications from multiple officials, including Chairman Jerome Powell, that continued encouraging inflation readings would provide confidence that rates can be cut.
Powell said in Portugal on Tuesday that the risks of cutting too early and risking a rebound in inflation were more balanced against cutting too late and endangering economic growth. Earlier, officials had stressed the importance of not giving up the fight against inflation too soon.
