The majority of Federal Reserve officials supported a quarter-point rate hike in February

The vast majority of Federal Reserve officials backed a slowdown in US interest rate hikes to 0.25 percentage point last month, according to a report from its most recent meeting, which showed the central bank is still determined to keep inflation back on target bring.

Earlier in the session, some investors feared the Federal Open Market Committee minutes would show a deepening disagreement among policymakers over whether the central bank moved to a more typical 0.25 percentage point rate hike after a series of larger hikes in February.

However, minutes of the February meeting showed that “almost all” participants agreed that a 25 basis point rate hike was appropriate, although “some” said they preferred or could have been persuaded to accept a 50 basis point hike support.

Against a backdrop of inflation still well above the Fed’s 2 percent target and a very tight labor market, “all participants” said they felt “sustained” increases in the central bank’s interest rate were needed to contain inflation to bring under control.

“Participants noted that until incoming data gave confidence that inflation was on a sustained downward path to 2 percent, a hawkish policy stance would need to be maintained, which would likely take some time,” the minutes read.

Last month’s quarter-point hike marked a return to a more typical pace of tightening for the Fed, which last year raised rates from near zero to over 4 percent through a series of jumbo hikes of 75 basis points and 50 basis points.

When inflation showed signs of cooling, the central bank slowed the pace of its hikes in response. However, officials also said that insufficiently tightening policies could “hold up” recent progress in containing inflation and “pose the risk that inflation will remain unanchored”.

Jonathan Cohn, head of interest rate trading strategy at Credit Suisse, said the minutes suggested a lower likelihood of a half-point rate hike at the Fed’s March meeting.

“It seems like the majority of the committee agrees with that [Jay] Powell,” Cohn said, referring to the Fed Chair who said after the February meeting that there had been “encouraging” signs of inflation.

“I think market prices will still be data dependent, but the bar is high for a re-acceleration towards 0.5 percentage points,” Cohn added.

Initial market reaction to the minutes was muted, with yields for both equities and government bonds falling slightly on the day.

The economic picture has changed significantly since the meeting, with reports on job creation, consumer price inflation and retail sales suggesting persistent price pressures are far from abating.

The January payroll report, released two days after the Fed meeting, showed US employers had added more than half a million jobs, almost three times what economists had forecast, while the unemployment rate was 3.4 percent, its lowest since 53 years reached. Although the report showed wage growth had slowed, a tight labor market has historically forced employers to hike wages and potentially push up inflation.

A smaller-than-expected fall in January’s CPI added to fears of persistent inflation, with notable price pressures remaining in sectors such as housing.

Some investors and economists believe the Fed will keep interest rates high for longer given the latest data.

“We are seeing slightly moderate but very, very slow growth, which suggests the Fed’s job is not done,” said Gennadiy Goldberg, strategist at TD Securities.

Since the meeting, two Fed officials, Cleveland Fed Chair Loretta Mester and St. Louis Fed Chair James Bullard, said they supported a larger 50 basis point rate hike at the time. However, neither Mester nor Bullard are voting members of the committee.

Although the majority of Fed officials supported February’s quarter-point hike, Eric Theoret, global macro strategist at Manulife Investment Management, said the fact that the committee even debated whether to raise rates by a half-point be significant.

“When we got out of the meeting we had the step up to a quarter point and Jerome Powell was talking about disinflation,” he said. “It looks like the Fed is saying here that they should have mentioned the half versus quarter point debate back then.” The majority of Federal Reserve officials supported a quarter-point rate hike in February

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