Fed minutes: rates will need to be restrictive for ‘some time’

Washington — Federal Reserve officials said last month that the pace of future interest rate increases would hinge on incoming data, with some saying rates would need to stay at a "sufficiently restrictive level" for "some time" in order to control inflation, according to the minutes of the July 26-27 session.

Participants at the session said it may take longer than anticipated for inflation to dissipate, and that a slowdown in aggregate demand engineered by the central bank "would play an important role in reducing inflation pressures", said the minutes, which were released on Wednesday.

US stocks fell for the first time in four days as concerns resurfaced over central banks’ aggressive measures to contain stubbornly high inflation, Bloomberg reported. Treasury yields jumped in a global bond rout and the dollar rose.

The S&P 500 index bounced off session lows along with the tech-heavy Nasdaq 100 after the Fed minutes.

The minutes did not indicate clear bias among Fed officials for either a smaller rate increase of half-a-percentage point or a third consecutive 75 basis point (bps) hike at the upcoming September 20-21 meeting, but a restatement that the behaviour of inflation and the economy in general would drive the decision.

The Fed has lifted its benchmark overnight interest rate by 225 bps this year to a target range of 2.25% to 2.50% as part of an effort to control inflation, which is running at a four-decade high and hovering, by the Fed’s preferred measure, at more than three times the 2% target.

The central bank is widely expected to hike rates next month by either 50 or 75 bps.

For the Fed to scale back its rate hikes, inflation reports due to be released before the next meeting would probably need to confirm that the pace of price increases was declining.

Reuters