Federal Reserve officials at last month’s meeting were concerned that consumers expected ever higher inflation and hinted that much higher interest rates may be needed to control it.
Policymakers also acknowledged their rate hike could weaken the economy in minutes of their June 14-15 meeting released on Wednesday. But he hinted that such steps are necessary to slow price growth to the Fed’s 2% annual target.
Officials agreed the central bank needs to raise its benchmark interest rate to a “restrictive” level that will slow economic growth and “believe an even tighter stance may be appropriate if inflation persists.” After last month’s meeting, the Fed raised interest rates by three-quarters of a point to a range of 1.5% to 1.75% — the largest single hike in almost three decades — and signaled that more larger hikes were needed. .
The Fed is intensifying its campaign to boost lending and slow growth, with inflation hitting a four-decade high of 8.6% and spreading to other sectors of the economy. Americans also expect higher inflation to last longer than previously thought – sentiment that could entrench inflation psychology and make it harder to rein in price growth.
And with the upcoming midterm elections, high inflation has added to American concerns and poses a threat to President Biden and the Democrats in Congress.
At a press conference following last month’s Fed meeting, Chair Jerome Powell indicated that either a half or three-quarter rate hike was likely when the next policymakers meet later this month. Minutes released on Wednesday confirmed that other officials agreed such an increase was “probably warranted”. Rate hikes of any magnitude would be larger than the Fed’s usual quarter-point hikes.
Last month, the Fed released estimates that officials expect to raise interest rates to 3.4% by the end of this year. At this level, the Fed interest rate will no longer stimulate growth and could weaken the economy. Minutes suggest policymakers could potentially hike rates above this level.