After the January meeting, Fed officials emphasized the need to stay vigilant, even though recent inflation data were encouraging.
In an interview with CNBC on Feb. 22, Mr. Bullard repeated his view that raising rates faster is more effective. However, even if he favors more drastic action, he thinks the peak of interest rates should be around 5.375%.
Economic data for January 2023 showed inflation rising slower than the summer peak of 2022, but still high.
Consumer price index (CPI) increased by 0.5% compared to December 2022 and increased by 6.4% over the same period.
Producer price index (PP) increased by 0.7% month-on-month and 6% year-on-year. Both indexes outperformed Wall Street's expectations.
The labor market is still hot. This shows that the impact of Fed rate hikes has been evident in the housing market and some interest rate sensitive sectors, but has not yet spread throughout the economy.
Despite the more hawkish comments from Ms. Mester and Mr. Bullard, the market is still betting more on the possibility of another 0.25 percentage point increase in March, followed by a few more hikes to bring the Fed rates. to 5.25 -5.5%, the highest level since 2001.
The market expressed concern that if the Fed acted too quickly and too strongly, the US economy could fall into a recession.
The minutes noted that "some" members said that the risk of recession was "high". Meanwhile, other officials think the Fed can avoid a recession and achieve a "soft landing" for the US economy.
"Members found uncertainty surrounding the outlook on economic activity, the labor market and inflation to be quite high," quoted the minutes of the meeting.
Among the worrying risks are war in Ukraine, the reopening of the economy in China and the possibility that the labor market could be tighter for a longer time than expected.