In an effort to tame inflation that is sitting at a four-decade high, Federal Reserve officials are contending that they will have to hike interest rates more rapidly and possibly more than what markets are anticipating, according to the minutes from their meeting released on Wednesday.

“Most participants judged that fifty basis point increases in the target range would likely be appropriate at the next couple of meetings,” the minutes said. Furthermore, Fed officials indicated that “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”

The Fed session in early May saw the Federal Open Market Committee (FOMC) green-light a rare half-percentage-point interest rate hike. Moreover, the Fed announced plans to shrink its $9 trillion asset portfolio beginning in June.  

“Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring it back down,” Fed Chairman Jerome Powell said in his post-meeting news conference. “We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses,” he continued.

The widely anticipated move of a fifty-basis point hike, the largest increase the rate-setting FOMC has instituted since May 2000, now puts the key benchmark federal funds rate at a range between 0.75 percent and 1 percent, the highest level since the pandemic began more than two years ago. The Fed funds rate essentially controls the amount that banks charge each other for short-term borrowing, but it also serves as a guide for many forms of consumer-related debt.

According to CNBC, “market pricing currently sees the Fed moving to a policy rate around 2.5 percent-2.75 percent by the end of the year, which would be consistent with where many central bankers view a neutral rate.”

However, minutes from the meeting suggest that officials are prepared to be even more aggressive. “All participants reaffirmed their strong commitment and determination to take the measures necessary to restore price stability,” the minutes stated. “To this end, participants agreed that the Committee should expeditiously move the stance of monetary policy toward a neutral posture, through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve’s balance sheet,” it continued.

Last week, Powell confirmed during a Wall Street Journal event that the central bank will keep on hiking interest rates until inflationary pressures head lower in “a clear and convincing way.”

“What we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that. If that involves moving past broadly understood levels of neutral, we won’t hesitate at all to do that,” he said.

Ethen Kim Lieser is a Washington state-based Finance and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.

Image: Reuters.