Fed policymakers hint tensions on inflation, divided over debt holdings

US Federal Reserve, Fed

Federal Reserve policymakers were increasingly split on the outlook for inflation and how it might affect the future pace of interest rate rises, according to the minutes of the Fed’s last policy meeting on June 13-14 released on Wednesday.

The details of the meeting, at which the US central bank voted to raise interest rates, also showed that several officials wanted to announce a start to the process of reducing the Fed’s large portfolio of Treasury bonds and mortgage-backed securities by the end of August but others wanted to wait until later in the year.

“Most participants viewed the recent softness in these price data as largely reflecting idiosyncratic factors…however, several participants expressed concern that progress…might have slowed and that the recent softness in inflation might persist,” the Fed said in the minutes.

The committee questioned why financial conditions had not tightened despite recent rate rises and a few said equity prices were elevated.

US stock prices were up slightly at the close of trade while yields on US government debt dipped. The dollar was little changed against a basket of currencies.

Last month’s 8-1 vote to lift the benchmark interest rate another quarter per centage point, its second this year, signalled the Fed’s confidence in a growing US economy and the eventual inflationary effects of low unemployment.

In a press conference at the time, Fed Chair Janet Yellen described a recent decline in inflation as temporary and the central bank kept its forecast of one more rate rise this year and three the next.

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