Update 2 – Fed officials split in July on the need for more rate hikes, minutes show

(Adds market reaction in paragraphs 8 and 11)

Written by Howard Schneider and Michael S Derby

WASHINGTON (Reuters) – Federal Reserve officials were divided over the need for more rate hikes at the U.S. central bank’s July 25-26 meeting, with “some participants” citing risks to the economy from a rate hike. The interest is far from over. “Most” policymakers continued to prioritize fighting inflation, according to minutes from the session released on Wednesday.

“Participants remained firm in their commitment to lowering inflation to the 2% target…the 5.50% range,” the minutes said of a meeting where FOMC policymakers unanimously agreed to raise the overnight rate to 5.25%. Significant rise in inflation, which may require further tightening of monetary policy.

However, cautionary voices about the effects of continued monetary tightening seemed to play a more prominent role in the debate at last month’s policy meeting, an indication that the spread of opinion on the Fed has widened as policymakers weigh evidence that inflation is falling and judge the potential. . The damage to jobs and economic growth if rates rise too high.

A couple of respondents called, for example, departure rates unchanged in July.

The minutes stated that the group “also discussed several risk management considerations that could influence future policy decisions.” Although the majority kept inflation as the biggest risk, “some respondents commented that although economic activity was resilient and the labor market remained strong, there are downside risks to economic activity and risks of higher unemployment.”

“This included the possibility that the macroeconomic effects of the tightening of financial conditions since the beginning of last year could prove to be greater than anticipated.”

Overall, the minutes said, Fed policymakers agreed that the level of uncertainty remains high, and that future interest rate decisions will depend on “total” data arriving in the “coming months” to help illustrate the extent of the deflationary process. — a possible indication of a more patient approach to any further increases in borrowing costs.

The response in financial markets was muted, with little change in Treasury yields and US stocks extending previous losses slightly.

The July meeting was held ahead of the release of data showing key price metrics have declined this summer along with diminished employment opportunities.

Investors in federal funds rate contracts are betting heavily that the Fed will not raise its policy rate again during the current tightening cycle, and as of Wednesday morning had put a 90% chance on the possibility that the central bank would leave rates open. Unchanged at the September 19-20 meeting.

These bets have not changed after the minutes have been published. (Reporting by Howard Schneider and Michael S. Derby; Additional reporting by Anne Safire; Editing by Paul Simao)

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