A “substantial majority” of Fed officials believe it will soon be time to slow down the central bank's current pace of rate hikes.
Minutes from the Federal Reserve's policy meeting earlier this month released Wednesday showed signs the central bank is set to shift away from its campaign of raising interest rates by 0.75% at its policy meeting next month.
"A number of participants observed that, as monetary policy approached a stance that was sufficiently restrictive to achieve the Committee's goals, it would become appropriate to slow the pace of increase in the target range for the federal funds rate," the minutes showed.
"In addition, a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate."
The minutes showed that while the pace of rate hikes might slow, how high the Fed ultimately raises interest rates during its current cycle has likely increased in recent months.
Officials noted that persistent inflation suggests rates will likely settle at levels "somewhat higher than they had previously expected."
Following the release of these minutes, stocks pushed higher on Wednesday afternoon.
In the minutes, officials noted that with the policy rate approaching a “sufficiently restrictive” stance, the level the Fed ultimately raises interest rates to has become more important than the pace of rate hikes.
“Participants agreed that communicating this distinction to the public was important in order to reinforce the Committee’s strong commitment to returning inflation to the 2 percent objective,” according to the minutes.
Several participants also felt that continued rapid policy tightening increased the risk of instability or dislocations in the financial system.
While the new focus has become how high the Fed will raise rates, many participants felt that there was significant uncertainty about the ultimate level of the federal funds rate needed to bring inflation back down to 2%.
Officials felt that purposefully moving to a more restrictive policy stance was prudent risk management given high inflation and upside risk to inflation. Members commented that recent data on inflation provided very few signs that inflation pressures were abating.
The minutes echoed Fed Chair Powell’s comments in the post-meeting press conference at the beginning of the month. Fed Chair Powell laid the groundwork to begin slowing down the pace of rate hikes at the central bank’s last policy meeting, but said the question of when to moderate the size of increases is less important than how high the central bank will ultimately raise rates to tame inflation.
Powell said interest rates will now need to rise higher than forecast until the Fed gets to a level that is “sufficiently restrictive.” Interest rate projections from the Fed’s policy meeting in September estimated rates would peak at a level of 4.6% next year. The Fed will release new projections at its December policy meeting.
In early November, the Fed raised interest rates by 75 basis points for the fourth straight meeting to a range of 3.75% to 4% that brought rates to their highest level since the end of 2007.
Markets are pricing in a 50-basis point move for the December meeting.
Fed Governor Christopher Waller said last week recent inflation data makes him more comfortable with the idea of raising rates 50 basis points at the central bank’s December meeting.
Cleveland Fed President Loretta Mester echoed Waller's comments in an interview this week, saying the Fed can likely "slow down" from its current pace of rate increases at its December meeting.
Though, some Fed members are still leaving 75 basis points on the table. San Francisco Fed President Mary Daly said Monday it’s premature to take another 75-basis point rate hike off the table if forthcoming inflation reports came in hot.