The Fed’s governing body was divided at its latest meeting over how much longer to keep rates on hold

3 Jul. () –

Members of the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed) were divided on how long to keep interest rates in the current target range of 5.25% to 5.5%, according to the minutes of the meeting on June 12.

While “some” officials stressed the need to be “patient”, “several” participants said that a slowdown in the labour market could lead to a comparatively large increase in the number of unemployed.

“With the labour market normalising, a weakening of demand could now lead to a greater rise in unemployment than in the recent past, when the lower demand for labour was reflected more through a smaller number of job vacancies,” the document explained.

In this regard, some members mentioned that, since the risks to the Fed’s dual mandate objectives of price stability and economic growth are now more balanced, the labor market will require “close monitoring.”

FOMC members also said they did not expect it to be “appropriate” to cut rates until more data and “greater confidence” that inflation was converging toward the 2% target were available. In fact, several participants were open to raising the price of money if inflation remained elevated.

“Participants noted the uncertainty surrounding the economic outlook and the duration of the current restrictive policy,” the minutes said.

In addition, the Fed’s decision-making body has also stressed that the “continued strength” of the economy, among other factors, could suggest that the neutral rate (r*) has been raised, that is, the rate that keeps the economy in balance in the absence of a crisis and with a rate of full employment and stable prices.