A “substantial majority” of policymakers at the Federal Reserve’s meeting early this month agreed it would “likely soon be appropriate” to slow the pace of interest rate hikes as debate broadened over the implications of the central bank’s rapid tightening of monetary policy, according to the minutes from the session.
The readout of the Nov. 1-2 meeting, at which the Fed raised its policy rate by three-quarters of a percentage point for the fourth straight time, showed Chairman Jerome Powell and other officials were largely satisfied they could stop front-loading the rate increases and move in smaller, more deliberate steps as the economy adjusted to more expensive credit.
“A slower pace … would better allow the (Federal Open Market) Committee to assess progress toward its goals of maximum employment and price stability,” said the minutes, which were released on Wednesday. “The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited.”
But the minutes also showed an emerging debate within the Fed over the risks the rapid policy tightening could pose to economic growth and financial stability, even as policymakers acknowledged there had been little demonstrable progress on inflation and that rates still needed to rise.
While “a few participants” said slower rate hikes could reduce risks to the financial system, “a few other participants” noted that any slowing of the Fed’s policy tightening pace should await “more concrete signs that inflation pressures were receding significantly.”
In its Nov. 2 policy statement, the Fed hinted at emerging concerns about the risks of policy tightening, saying the “pace of future increases” would “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
“Many participants commented that there was significant uncertainty about the ultimate level of the federal funds rate needed to achieve the Committee’s goals,” the minutes said, language suggesting Fed officials shifting focus from the size of individual rate hikes to trying to calibrate a stopping point.
The Fed will hold its next policy meeting on Dec. 13-14. In addition to a policy statement, the central bank will release new policymaker projections for the path of interest rates, inflation and unemployment.
Investors in contracts tied to the Fed’s policy rate expect a half-percentage-point increase at that meeting.