Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough for them to lower interest rates, minutes released Wednesday showed.
“Participants affirmed that additional favorable data were required to give them greater confidence that inflation was moving sustainably toward 2 percent,” the meeting summary said.
Though the minutes reflected disagreement from the 19 central bankers who took part in the discussion, with some even indicating a penchant toward raising rates if necessary, the meeting concluded with Federal Open Market Committee voters holding rates in place.
The Fed targets 2% annual inflation, a level it has been above since early in 2021. Officials at the meeting said data has improved lately, though they are want more evidence that it will continue.
Meeting participants “emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee’s 2 percent objective.”
At the meeting, policymakers also provided an update on economic projections and monetary policy over the next several years.
The FOMC “dot plot” showed one quarter percentage point cut by the end of 2024, down from the three indicated following the last update in March. Even though the dot plot indicated one cut this year, futures markets continue to price in two, starting in September.
Also, the committee largely left its economic projections intact, though they lowered their inflation expectations for this year.
In discussions over how they would approach monetary policy, the minutes reflected some disagreements. Some members noted the need to tighten the reins should inflation persist, while others made the case that they should be ready to respond should the economy falter or the labor market weaken.
“Several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised,” the minutes stated. “A number of participants remarked that monetary policy should stand ready to respond to unexpected economic weakness.”
The minutes do not identify individual members nor do they provide exact amounts for the number of officials expressing particular viewpoints. However, in the Fed parlance, “a number” is considered more than “several.”
The summary also noted a “vast majority” saw economic growth “gradually cooling” and that the current policy is “restrictive,” a key term as the officials contemplate how restrictive policy needs to be while bringing down inflation and not causing undue economic harm.
Since the meeting, officials have largely stuck to a cautious script stressing data dependency rather than forecasts. However, there have been indications from multiple officials, including Chair Jerome Powell, that continued encouraging readings on inflation would provide confidence that rates can be lowered.
In an appearance Tuesday in Portugal, Powell said the risks of cutting too soon and risking a resurgence in inflation against cutting too late and endangering economic growth have come more into balance. Previously, officials had stressed the importance of not backing off the inflation fight too soon.