Fed minutes show officials expect to hike rates three times to fight inflation

Still, at the May meeting, “most participants felt that increases of 50 basis points in the target range would likely be appropriate at the next two meetings,” according to the minutes, which were released Wednesday.

Fed officials have made clear they will do what it takes to rein in inflation, which hit 8.5% in the United States last month, the fastest 12-month pace since 1981. The Fed’s favorite measure of inflation, the personal consumption expenditure price index, is also rising, but not as quickly, climbing 6.6% in March from a year earlier.

While the Fed and many outside economists expected prices to ease as the economy reopened and supply chains returned to more normal operations, that didn’t happen. Instead, prices continued to rise, spanning categories such as food, rent and gasoline. The Covid shutdowns in China and the war in Ukraine have only exacerbated the price hikes for goods, food and fuel.

But as rates rise, the Federal Reserve will be watching closely for signs that the economy’s trajectory is starting to change. Data released on Tuesday showed new home sales fell 16.6% in April from the previous month, a sign that higher borrowing costs could cool the housing market. S&P Global surveys on Tuesday also pointed to slowing activity at services companies in the United States and elsewhere, and continued supply chain disruptions at global factories.

Data released after the May Fed meeting showed that the annual pace of price increases moderated somewhat in April, but inflation rates were still too high. The overriding question for the Fed is whether policymakers will be able to slow the economy enough to temper inflation without causing a recession, which Powell and his colleagues have repeatedly acknowledged as likely a challenge. While Fed officials have said their goal for now is to return policy to a “neutral” stance, they may have to go beyond that if conditions deteriorate, essentially dragging the economy down, rather than just releasing the gas.

Participants “noted that a restrictive policy stance may well become appropriate depending on the evolution of the economic outlook and the risks to the outlook,” according to the minutes.

“There are huge events, geopolitical events happening around the world that are going to play a very big role in the economy over the next year,” Powell said last week. “So whether we can execute a soft landing or not, it may actually depend on factors that we don’t control.”

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