Fed’s internal divisions deepen… some also call for rate hikes

Clear differences have emerged within the U.S. central bank (Fed) over the future path of monetary policy.

According to minutes of the Jan. 27–28 Federal Open Market Committee (FOMC) meeting released by the Fed on the 18th (local time), officials agreed for the time being to pause further rate cuts, but showed divergent views on the policy direction later this year. The decision to keep the policy rate unchanged was broadly supported. Officials generally projected inflation to slow this year, but assessed that the pace and timing of the decline were uncertain. The minutes also said that “most participants warned that progress toward the 2% inflation goal could be slower and more uneven than expected.”

Debate over the policy focus going forward also appeared to have continued. The minutes stated that “several participants noted that, if inflation declines in line with expectations, it may be appropriate to further reduce the target range for the federal funds rate.” Some officials judged that additional easing could not be justified until there was confirmation of signals that disinflation had clearly resumed.

Other officials said the Fed should keep the possibility of rate hikes on the table. They wanted future rate decisions to more clearly reflect that outcomes could unfold in “both directions.” In other words, if inflation continues to run above the target, a rate hike could be appropriate.

The future composition of the Fed leadership is also a variable. The prospect of a shift in the policy stance is also being raised if Kevin Warsh is confirmed as the next chair.

New York=Park Shin-young, Correspondent nyusos@hankyung.com