MNI: Most Of FOMC Saw One More Hike This Year -- Fed Minutes

Most Federal Reserve officials agreed at their September meeting that they would need to raise interest rates one more time this year, according to minutes from the central bank’s September meeting, although the recent spike in bond yields since the meeting appears to have dampened that inclination to some degree.

“A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted. All participants agreed that the Committee was in a position to proceed carefully,” the Fed minutes said.

The minutes highlighted the Fed’s higher for longer message.

“All participants agreed that policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective,” the report said.

“Several participants commented that, with the policy rate likely at or near its peak, the focus of monetary policy decisions and communications should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels.”

The Fed last month left interest rates on hold at a 22-year high of 5.25%-5.5%, but officials continued to pencil in one additional rate increase this year in their Summary of Economic Projections. That was before a deepening selloff in longer-run Treasuries pushed 10-year yields to 16-year highs, a move some policymakers have since argued could be a substitute for additional rate hikes.

MORE BALANCED

In a shift, FOMC members said monetary policy risks had become more balanced between doing too much and doing too little.

“Several participants judged that, over coming quarters, business activity would be restrained by tighter financial conditions, such as higher interest rates and more constrained access to bank credit,” the minutes said.

The Fed’s SEP also reduced the number of rate reductions projected for next year to just two from four in the June estimates. That higher for longer message is widely seen as having contributed to the continued rise in bond yields, which has seen a respite since the Hamas attack on Israel sparked a bid back into Treasuries this week.

“Participants noted that the data received over the past several months generally suggested that inflation was slowing. Even with these favorable developments, they emphasized that further progress was needed to get inflation sustainably to 2%,” the report said.

Policymakers are caught between two sets of countervailing concerns. On the one hand, they worry that a mix of policy lags plus the latest surge in bond yields could slow economic growth even more than expected.

At the same time, they are faced with the risk that a resilient economy and labor market will lead to a plateauing or even reacceleration of price pressures, particularly with oil prices rising again. The latest employment report showed a booming 336,000 new jobs were created in September alone.

CPI data for September is set for release Thursday.