Federal Reserve officials reaffirmed their commitment to fighting inflation with big rate hikes and pledged to use “more restrictive policy” as needed, especially amid “significant risk” that high consumer prices could become “entrenched” for longer, according to the minutes from the central bank’s latest policy meeting.
The Federal Reserve doubled down on its commitment to bringing down inflation, even if it means implementing a “more restrictive [policy] stance,” according to minutes from the central bank’s June meeting.
With surging inflation showing no signs of abating, Fed policy makers plan to raise interest rates by either 50 or 75 basis points at the upcoming meeting in July.
While tighter monetary policy “could slow the pace of economic growth for a time,” it is “critical” to achieving long-term inflation goals, central bank officials agreed, pledging to take more aggressive action even if it means hurting economic growth.
The central bank also acknowledged that there is now a “significant risk” that elevated inflation “could become entrenched” for a longer period of time, which would require more significant interest rate hikes and tighter policy.
Despite expressing optimism about the long-term outlook for the U.S. economy, Fed officials slashed their full-year GDP forecasts to 1.7%, down from a previous estimate of 2.8% in March.
The Fed last raised interest rates by 75 basis points in June—the largest increase in 28 years—in a bid to combat red-hot consumer prices, which jumped 8.6% in May compared to a year ago. Fed Chair Jerome Powell said at the time that the central bank will continue to hike rates aggressively, with another 75-basis-point increase under consideration for the next meeting in July.
Markets were little changed after the release of the latest Fed minutes on Wednesday, though stocks did rally slightly. The Dow Jones Industrial Average rose 0.3%, nearly 100 points, while the S&P 500 gained 0.4% and the tech-heavy Nasdaq Composite 0.3%.