Most Federal Reserve officials agreed that the latest 25-basis-point rate hike was necessary to keep inflation under control, according to the minutes from the central bank's most recent meeting at the beginning of the month. The hike brought the federal funds rate to a target range of 4.5 to 4.75 percent.
The minutes revealed that although most officials agreed with the hike size, several board members suggested a 50-basis-point increase to create a bigger impact on the economy. St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester were among the proponents of this more significant rate hike.
Although the rate-setting meeting concluded with a smaller increase than most hikes implemented by the Fed since March 2022, officials remained concerned about inflation.
"Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path," the minutes said.
In January, the consumer price index increased by 0.5 percent from the month before, while the year-over-year increase was 6.4 percent. The producer price index in the same month posted a month-over-month raise of 0.7 percent and an annual increase of six percent. Both readings were higher than earlier predictions.
According to the Bureau of Labor Statistics, the job market added 517,000 payrolls last month. At the same time, the unemployment rate was at 3.4 percent, the lowest level since May 1969. Fed officials in the February meeting said the tight U.S. job market could contribute to "continuing upward pressures on wages and prices."
Officials warned about the need to remain on guard, even if other data published recently showed signs of cooling inflation, which so far affected rate-sensitive sectors like the housing market. The minutes asserted that Federal Open Market Committee (FOMC) members were adamant that more rate hikes would be necessary.
Analysts have forecasted that there will be two more rate hikes in March and May, with each increase being 25 basis points. It is expected that the federal funds rate will peak at around 5.25 to 5.5 percent by July in this tightening cycle, the highest since 2001.
Wall Street ended mixed after the publication of the meeting minutes. The Dow Jones shed 0.26 percent or 84.50 points, closing at 33,045.09. The S&P 500, which measures the stock value of the top 500 U.S. firms, concluded the session at 3,991.05, losing 0.16 percent or 6.29 points.
The tech-heavy Nasdaq was the only gainer among Wall Street major indexes on Wednesday, ending the session 0.13 percent higher at 11,507.07.
Concerns over recession
Since the Fed began its rate hikes last year, markets have warned that the Fed can send the U.S. economy into a recession due to its fast-paced monetary tightening.
The recent minutes also noted that some FOMC members saw an "elevated" risk of recession. Meanwhile, other officials expressed optimism that the Fed could achieve a "soft landing" for the economy — a situation where growth slows down but does not contract.
"Participants observed that the uncertainty associated with their outlooks for economic activity, the labor market, and inflation was high," the minutes added.
The Fed meeting discussed several risk factors that can tip the economy into a recession, including the war in Ukraine, the reopening of China's economy and the possibility that the U.S. job market could remain robust for longer than anticipated.