Fed officials signal more rate hikes likely amid sticky inflation, minutes show

Federal Reserve policymakers see more interest rate hikes ahead

Federal Reserve officials signaled at their most recent meeting that additional interest rate hikes are necessary this year to bring inflation down to their 2% target, although many supported a slower pace of increases. 

Minutes from the U.S. central bank's Jan. 31-Feb. 1 meeting released on Wednesday showed that a number of policymakers are worried an "insufficiently restrictive" policy stance could "halt recent progress in moderating inflationary pressures" and keep consumer prices elevated for a longer period.

"Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time," the meeting minutes said.

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Stocks ended the session mixed after the release. 


Officials voted at the meeting to raise the benchmark interest rate a quarter percentage point to a range of 4.5% to 4.75% and signaled that a "couple more" increases are on the table this year. That followed a half-point increase at their December meeting and four consecutive 75-basis-point moves before that. 

The move was unanimous, and "almost all participants" agreed that it was appropriate to raise rates by a quarter point in order to better assess the economic impact of such rapid tightening. But "a few" policymakers favored a bigger 50-basis-point hike. 


"The participants favoring a 50-basis-point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance," the minutes said.

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Markets widely expect the Fed to continue raising rates at a quarter-point pace, but a slew of hotter-than-expected economic data reports in recent weeks, including the blowout January jobs report and disappointing inflation data that pointed to the pervasiveness of high consumer prices, has raised the specter of a higher peak rate or steeper increases. 

The Labor Department reported on Feb. 10 that the consumer price index rose 0.5% in January, the most in three months. The annual inflation rate also surprised to the upside at 6.4%. 

Federal Reserve Chairman Jerome Powell

Federal Reserve Chair Jerome Powell (Olivier Douliery / AFP via Getty Images / File / Getty Images)

That data has prompted some traders to reexamine their rate hike expectations for the year, with a growing number of investors now betting the Fed could raise rates higher than previously projected. About 58% of traders expect the Fed to increase the federal funds rate by another 75 basis points, while 17% expect rates to increase by a full percentage point, according to data from the CME Group's FedWatch tool. 


Fed officials have acknowledged that rates may need to go higher than expected and remain elevated for longer. 

"My overall judgment is it will be a long battle against inflation, and we’ll probably have to continue to show inflation-fighting resolve as we go through 2023," St. Louis Fed President James Bullard said last week. "I wouldn’t rule anything out for that meeting or any meeting in the future."