Fed Officials Were Split Over the June Rate Pause

Federal Reserve officials were unanimous in their decision to raise interest rates earlier this month, but were conflicted over whether additional increases would be necessary to bring inflation under control, according to minutes from the Fed’s last meeting released on Wednesday.

The Fed voted to raise interest rates by a quarter-point on May 3, to a range of 5 to 5.25 percent, the 10th straight increase since the central bank started its campaign to rein in inflation last year. Although officials left the door open to further rate increases, the minutes make clear that “several” policymakers were leaning toward a pause.

“Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” the minutes said.

Still, some officials believed “additional policy firming would likely be warranted at future meetings” since progress on bringing inflation back to the central bank’s 2 percent target could continue to be “unacceptably slow.”

Policymakers believed that the Fed’s moves over the past year had significantly contributed to tighter financial conditions, and they noted that labor market conditions were starting to ease. But they agreed that the labor market was still too hot, given the strong gains in job growth and an unemployment rate near historically low levels.

Officials also agreed that inflation was “unacceptably high.” Although price increases have shown signs of moderating in recent months, declines were slower than officials expected, and officials were concerned that consumer spending could remain strong and keep inflation elevated. Some noted, however, that tighter credit conditions could slow household spending and dampen business investment.

Fed officials believed the U.S. banking system was “sound and resilient” after the collapses of Silicon Valley Bank and Signature Bank this year led to turbulence in the banking sector. Although they noted that banks might be pulling back on lending, policymakers said it was too soon to tell how big of an impact credit tightening might have on the overall economy.

One source of concern for policymakers was brinkmanship over the nation’s debt limit, which caps how much money the United States can borrow. If the cap is not raised by June 1, the Treasury Department could be unable to pay all of its bills in a timely manner, resulting in a default. Many officials said it was “essential that the debt limit be raised in a timely manner” to avoid the risk of severely damaging the economy and rattling financial markets.

The central bank’s next move remains uncertain, with policymakers continuing to leave their options open ahead of their June meeting.

Lorie Logan, the president of the Dallas Fed, said last week that, based on recent data, another rate increase in June might be possible. Still, she acknowledged it was too soon to say.

“The data in coming weeks could yet show that it is appropriate to skip a meeting,” Ms. Logan said in a speech on Thursday. “As of today, though, we aren’t there yet.”

Minneapolis Fed President Neel Kashkari, in an interview with The Wall Street Journal last week, said he could support holding rates steady at the June 13-14 meeting to give policymakers more time to assess how the economy is shaping up.

“I’m open to the idea that we can move a little bit more slowly from here,” he said.

Officials have reiterated that they would continue to monitor incoming data before reaching a decision. On Friday, the Commerce Department will release a fresh reading of the Personal Consumption Expenditures index, the Fed’s preferred gauge of inflation. Early next month, the federal government will also release new data on job growth in May.