Federal Reserve officials continued to anticipate further increases in borrowing costs would be necessary to bring inflation down to their 2% target when they met earlier this month, though almost all supported a step down in the pace of hikes.
"Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time," according to the minutes of the Jan. 31-Feb. 1 gathering released in Washington on Wednesday.
The minutes also said "almost all" officials agreed it was appropriate to raise interest rates by 25 basis points at the meeting, while "a few" favored or could have supported a bigger 50 basis-point hike.
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US central bankers raised interest rates by a quarter-point, moderating their action after a half-point hike in December and four consecutive jumbo-sized 75 basis-point increases. The move lifted the benchmark policy rate into a range of 4.5% to 4.75%. Both Chair Jerome Powell and the minutes indicated that officials are prepared to raise rates further to produce a broader slowdown in the economy that tamps down inflation.
"Participants generally noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook, and that maintaining a restrictive policy stance until inflation is clearly on a path toward 2% is appropriate from a risk-management perspective," the minutes said. A number of officials said that an "insufficiently restrictive" policy stance could stall recent progress on moderating inflation pressures, according to the minutes.
The economy exited 2022 "with more momentum in the labor market and risks around inflation" than Fed officials likely expected, said Michael Gapen, head of US economics at Bank of America Securities. "We need to see broad-based disinflation, and we didn't get that in recent data."
Gapen's forecast is for the Fed to continue tightening to a range of 5.25% to 5.5%, one hike above the 5.1% median officials forecast in December.
