Federal Reserve representatives noted during their June gathering that while inflation trends are heading towards the desired direction, the pace is insufficient for any immediate reduction in interest rates, according to the minutes released on Wednesday.
The minutes revealed that the policymakers require more convincing data to be confident that inflation is steadily approaching the 2% target. Although there was some disagreement among the 19 central bankers in the discussion, with a few even considering a rate hike if necessary, the Federal Open Market Committee ultimately decided to maintain the current rates.
The Fed has been targeting an annual inflation rate of 2%, a figure consistently surpassed since early 2021. Recent data suggests improvement, but officials seek more proof of sustained progress.
During the session, officials reiterated that they wouldn't consider reducing the federal funds rate target range until they observed additional data confirming that inflation is reliably trending towards the 2% goal.
Additionally, the policymakers updated their economic projections and monetary strategy for the upcoming years. The FOMC's "dot plot" anticipates a quarter percentage point cut by the end of 2024, a reduction from the three cuts projected after the March update. Despite this, futures markets still expect two rate cuts starting in September.
The committee mostly maintained its economic forecasts but reduced its inflation expectations for the current year. The minutes highlighted some divisions in how to approach future monetary policy. Some members pointed out the need for stricter controls if inflation remains high, while others argued for preparedness to act in case of economic downturns or labor market issues.
"Several participants noted that if inflation remains high or increases, the federal funds rate range might need to be elevated," the summary stated. "A number of participants emphasized that monetary policy must be ready to address unforeseen economic weaknesses."
While the minutes do not specify the identities or the exact count of officials holding each view, they do indicate that a "vast majority" observed the economy likely experiencing a gradual slowdown. They described the current policy as "restrictive," important for assessing the necessary severity of policies to reduce inflation without significantly harming the economy.
Since this meeting, Fed officials have continued to promote a cautious approach, focusing on real-time data over projections. Following a recent event in Portugal, Chair Jerome Powell noted that the balance between the risks of reducing rates too early—which could reignite inflation—and delaying cuts, which could harm economic growth, is becoming clearer. Previously, the emphasis was on not prematurely easing efforts against inflation.
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