U.S. Federal Reserve officials were uncertain at their June meeting about future interest rate steps and wanted to see more data before deciding whether any more tightening was needed, minutes of the meeting released Thursday showed.
“With the economy slowing and some of the effects of past tightening still in the pipeline, members recognized the value of accumulating more information for determining what, if any, additional policy action would be needed following the tightening adopted at the current meeting,” minutes of the June meeting of the Federal Open Market Committee said.
“Many members noted that significant uncertainty accompanied the appropriate setting of policy going forward, and one indicated that the decision to raise the target federal funds rate at this meeting was a close call,” the minutes said.
The Fed at its June 28-29 meeting raised short-term interest rates a 17th consecutive time to 5.25 percent. In announcing that action, the Fed said moderating growth should help ease price pressures, even though it held out the possibility it could extend its two-year tightening campaign.
The minutes made clear Fed officials were concerned about a recent pickup in core inflation and debated the extent the rise might be transitory or more persistent.
“All participants found the elevated readings on core inflation of recent months to be of concern and, if sustained, inconsistent with the maintenance of price stability,” they said.
Analysts said the minutes, along with Fed Chairman Ben Bernanke’s comments to Congress that growth is moderating and that inflation pressures are likely to ease as a result, suggest the Fed is grappling with whether there is need for further interest rate increases.
“All of these reports, whether they be the minutes or Bernanke’s testimony, are hinting that they are preparing the market to pause,” said George Goncalves, a Treasury and agency trading strategist at Banc of America Securities in New York.
Fed officials at the June FOMC said a rise in energy prices and increase in rents had temporarily boosted core inflation. But energy costs would likely level off and housing costs were seen as decelerating in the future.
“With inflation expectations contained and unit labor costs held down by ongoing gains in productivity and modest advances in compensation, inflation was seen by most participants as likely to edge down,” the minutes said.
But Fed officials worried that some factors could potentially sustain inflation pressures. Difficulty hiring skilled workers in some districts and business contacts reporting less difficulty in passing higher costs on to consumers suggested the possibility of rising wage pressures and greater pricing power for businesses, they said.
“The relatively taut resource markets and the lagged effects of the increase in energy prices raised the possibility that inflation could continue at somewhat elevated levels for some time,” the Fed said.
Futures markets were evenly split on the odds of the Fed raising rates again at its Aug. 8 meeting.
