Fed Minutes Reaffirm Plans To Continue Raising Interest Rates

The Federal Reserve released the minutes of its July monetary policy meeting on Wednesday, reaffirming the central bank’s plans to continue raising interest rates in an effort to return inflation to its 2 percent objective.

The Fed did not provide specific guidance regarding the pace of future rate hikes, noting that the extent of future policy tightening would depend on the implications of incoming data for the economic outlook and risks to the outlook.

The minutes did reveal that meeting participants believed it would be necessary to move to a “restrictive stance of policy” due to inflation remaining well above the Fed’s objective.

At the same time, the Fed said participants judged that it would eventually become appropriate to slow the pace interest rate hikes in order to assess the impacts of higher rates on economic activity and inflation.

“Some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent,” the Fed added.

The minutes showed participants agreed the decision to aggressively raise rates showed the Fed was acting with resolve to lower inflation to 2 percent and anchor inflation expectations at levels consistent with that longer-run goal.

Participants remarked that moving to a restrictive stance of the policy rate in the near term would help manage risks such as elevated inflation becoming entrenched if the public began to question the Fed’s resolve to adjust the stance of policy sufficiently.

Meanwhile, the minutes said many participants remarked on the possibility the Fed could tighten the stance of policy by more than necessary to restore price stability.

“These participants highlighted this risk as underscoring the importance of the Committee’s data-dependent approach to judging the pace and magnitude of policy firming over coming quarters,” the Fed said.

Following the July meeting, the Fed announced its widely expected decision to raise interest rates by another 75 basis points.

The Fed said it decided to raise the target range for the federal funds rate to 2.25 to 2.50 percent in an effort to achieve its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run.

The rate hike followed another 75 basis point increase in rates in June and marked the fourth straight central bank meeting that has resulted in a rate hike.

The next Fed meeting is scheduled for September 20-21, with CME Group’s FedWatch Tool currently indicating a 63.5 percent chance of a 50 basis point rate hike and a 36.5 percent chance of another 75 basis point rate hike.

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