U.S. Fed saw smaller hikes ahead to assess impact, minutes show

U.S. Federal Reserve officials agreed last month on the need to eventually dial back the pace of interest-rate hikes but also wanted to gauge how their monetary tightening was working toward curbing US inflation.

“As the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation,” according to minutes of the Federal Open Market Committee’s July 26-27 meeting released Wednesday in Washington. 

“Many participants remarked that, in view of the constantly changing nature of the economic environment and the existence of long and variable lags in monetary policy’s effect on the economy, there was also a risk that the committee could tighten the stance of policy by more than necessary to restore price stability,” the minutes showed.

Fed officials raised their benchmark interest rate by 75 basis points at that meeting for a second straight month, marking the fastest pace of tightening since the early 1980s in a battle against red-hot inflation.