American stock markets slid into the red last night after it emerged that a majority of officials at the US Federal Reserve had agreed at their last policy meeting to slow the pace of interest rate rises but also had warned that the risk of high inflation remained a “key factor” and warranted further increases in borrowing costs.
“Almost all participants agreed that it was appropriate to raise the target range of the federal funds rate 25 basis points,” said the minutes from the meeting three weeks ago, which were released yesterday. Several ratesetters said that this approach would enable the Fed to better “determine the extent” of future increases.
“Participants generally noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook,” the minutes said. Rates would need to move higher and to stay elevated “until inflation is clearly on a path to 2 per cent”.
Only “a few” participants at the meeting favoured a rise of 0.5 percentage points.
The American central bank has raised its policy rate over eight meetings from a starting point near zero last March to the present range of 4.5 per cent to 4.75 per cent. Since the Fed’s last meeting, the world’s largest economy has continued to grow and to add jobs at an unexpectedly rapid pace.
Bond yields rose after the release of the minutes and the dollar also advanced against a basket of currencies. The yield on the two-year Treasury note, the government bond maturity most sensitive to Fed policy expectations, rose by about four basis points from its level before the release to about 4.69 per cent.
Paul Ashworth, chief North America economist at Capital Economics, said the Fed minutes were relatively doveish as the meeting had pre-dated the run of strong employment and activity data releases last month.
On Wall Street the S&P 500 closed down 6.29 points, or 0.2 per cent, at 3,991.05 and the Dow Jones industrial average was 84.50 points, or 0.3 per cent, lower at 33,045.09. The technology-focused Nasdaq recovered to close up 14.77, or 0.1 per cent, at 11,507.07.