Some Fed Policymakers Wanted Higher Rates

Minutes from the Fed's meeting earlier this month showed some policymakers wanted to raise interest rates 50 basis points (bps) in order to try to get rising prices under control.

The minutes from the meeting on Jan. 31 and Feb. 1 showed "almost all participants" agreed it was appropriate to boost the federal funds rate by 25 bps to a range of 4.5% to 4.75%. However, "a few participants" said they favored or would have favored increasing it by twice that amount, arguing such a move would bring the range more quickly to the levels they felt would achieve "a sufficiently restrictive stance, taking into account their views of the risk to achieving price stability in a timely way." In the end, the members unanimously agreed to the 25-bp hike.

The participants explained that a restrictive monetary policy stance would need to be maintained until incoming data "provided confidence" that inflation was on a sustained downward path to the Fed's 2% goal, and that was likely "to take some time."

Risk of Not Doing Enough

The minutes also noted that a number of officials observed that a policy stance that was insufficiently restrictive could stop recent progress in reducing inflation, keeping it above the Fed's target for a longer period of time, and "pose a risk of inflation expectations becoming unanchored."

In addition, a number of policymakers observed that financial conditions had eased in recent months, and if that continued it "could necessitate a tighter stance of monetary policy."

The minutes didn't indicate what the Fed might do at the next meeting in March. According to the CME Group's FedWatch Tool, the probability of a 50-bp rise increased after the release of the minutes. It's now at 27%, while the chance of a 25-bp gain is at 73%.