After several unexpectedly high inflation readings, Federal Reserve officials concluded at a meeting earlier this month that it would take longer than they previously thought for inflation to cool enough to justify reducing their key interest rate, now at a 23-year high.
Minutes of the May 1 meeting, released Wednesday, indicate that officials also debated whether their benchmark rate was exerting enough of a drag on the economy to further slow inflation. Many officials noted that they were uncertain how restrictive the Fed’s rate policies are, the minutes said. That suggests that it wasn’t clear to the policymakers whether they were doing enough to restrain price growth.
High interest rates “may be having smaller effects than in the past,” the minutes said. Economists have noted that many American homeowners, for example, refinanced their mortgages during the pandemic and locked in very low mortgage rates. Most large companies also refinanced their debt at low rates. Both trends have blunted the impact of the Fed’s 11 rate hikes in 2022 and 2023.
Such concerns have raised speculation that the Fed might consider raising, rather than cutting, its influential benchmark rate in the coming months. Indeed, the minutes noted that “various” officials “mentioned a willingness” to raise rates if inflation re-accelerated.
