Federal Reserve officials said they were awaiting additional evidence that inflation is cooling and were divided on how long to keep interest rates elevated at their last policy meeting.

Minutes from the two-day Federal Open Market Committee gathering ended June 12 showed officials didn’t expect it would be appropriate to lower borrowing costs “until additional information had emerged to give them greater confidence that inflation” is on track to their 2 per cent goal.

The Fed has held its key policy rate in a target range of 5.25 per cent to 5.5 per cent — the highest level in more than two decades — since last July.

Officials at their last meeting dialed back the number of interest-rate cuts they see this year to just one, according to the median projection. Four policymakers, however, penciled in no cuts for 2024, while eight officials forecast two.

“Participants noted the uncertainty associated with the economic outlook and with how long it would be appropriate to maintain a restrictive policy stance,” according to the minutes released Wednesday in Washington.

While “some” officials underscored the need for patience, “several” participants specifically emphasized a further weakening in demand could generate a larger increase in unemployment. Several policymakers maintained a willingness to raise interest rates should inflation remain elevated.

After a string of data in early 2024 indicated a stalling in inflation progress, the picture has started to improve. The Fed’s preferred measure of underlying inflation, which excludes food and energy prices, posted its smallest advance in six months in May.

Chair Jerome Powell said Tuesday that recent data suggest inflation is getting back on a downward path, but emphasized policymakers need more evidence before they begin lowering rates.

Labor Market

The minutes showed increasing caution about the labor market as the risks to achieving the Fed’s employment and inflation goals have moved into better balance.

While the US economy continues to add jobs at a solid pace, the unemployment rate has edged higher in recent months. San Francisco Fed President Mary Daly warned last week the labor market is nearing an inflection point where further slowing could bring higher unemployment. 

“Several participants specifically emphasized that with the labor market normalizing, a further weakening of demand may now generate a larger unemployment response than in the recent past when lower demand for labor was felt relatively more through fewer job openings,” the minutes showed.

Friday’s jobs report is expected to show employers added 190,000 jobs in June and the unemployment rate held steady. That would mark a slowdown from May, when payrolls topped forecasts.

Long-Run Rate Debate

The minutes showed continued debate among officials about the extent to which Fed policy is restraining the economy.

“Some remarked that the continued strength of the economy, as well as other factors, could mean that the longer-run equilibrium interest rate was higher than previously assessed, in which case both the stance of monetary policy and overall financial conditions may be less restrictive than they might appear,” the minutes showed.

Policymakers forecast in June that the long-run neutral interest rate, which describes a policy stance that neither bolsters nor restrains the economy, has risen to 2.8 per cent.