A significant majority of policymakers at the US Federal Reserve feel that it will be appropriate to consider the slowing of the rate hikes, reports have said. The report comes amid concerns over the impact of several rounds of federal rate hikes over the past year.
The minutes of the policymakers’ meeting earlier this month showed that a ‘substantial majority’ of policymakers thought it was now okay to reduce the pace of the rate hike, Reuters reported.
After its meeting held during November 1-2, the Fed raised the benchmark lending rate by 0.75 percentage point, marking the sixth rate hike this year as red hot inflation continues to ravage the world’s largest economy.
“In determining the pace of future increases in the target range the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation and economic and financial developments,” the FOMC policy statement said.
Fed’s Earlier Stance
Significantly, at that point, the Fed had said that it had not started, yet, to think about pausing the rate hikes. According to the Federal Open Market Committee (FOMC), there will be more rate increases in the coming months.
Fed Chair Jerome Powell reiterated the need to bite the bullet and face the pain until inflation comes down to a reasonable level, effectively ruling out a soft landing for the economy. “The inflation picture has become more and more challenging over the course of this year. That means we have to have policy more restrictive, and that narrows the path to a soft landing,” he said.
However, the minutes showed that the policymakers thought there was a need to calibrate the rate hikes in the coming months.
“A slower pace … would better allow the (Federal Open Market) Committee to assess progress toward its goals of maximum employment and price stability …The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited,” the minutes said.
The committee observed that the monetary policy is approaching a sufficiently restrictive stance and that it is also important to have a focus on how much the rates should rise to lower inflation.
“With monetary policy approaching a sufficiently restrictive stance, participants emphasized that the level to which the Committee ultimately raised the target range … and the evolution of the policy stance thereafter, had become more important considerations … than the pace,” the minutes said.
The Fed has been battling accusations that it has gone too quickly on monetary tightening. Powell denied the charge on Wednesday, saying instead that high inflation will inflict more pain on the economy.