Fed considers smaller rate hikes for inflation relief goal, minutes show

Yahoo Finance Fed reporter Jennifer Schonberger breaks down the most recent Fed meeting minutes addressing the pace of its interest rate hike cycle.

Video transcript

DAVE BRIGGS: The story markets have been waiting on all day, the release of Fed Minutes, which should give clues as to the future size and pace of interest rate hikes when and if a pause may be in order. Jen Schonberger here with the latest from the Fed. Hi, Jen. What did we learn today?

JENNIFER SCHONBERGER: Hi, Dave. Good afternoon. A substantial majority of Fed officials thought that slowing down the pace of rate hikes would likely soon be appropriate, according to internal discussions of Fed officials at their policy meeting three weeks ago. But they noted that with the policy rate approaching a, quote, "sufficiently restrictive stance," that the level that the Fed ultimately raises rates to matters more than the pace.

Now slowing down the pace of rate hikes would allow officials to assess progress that's already been made on bringing inflation back down towards that 2% target, by assessing the impact of cumulative rate hikes and the lag time it really takes for these rate hikes to filter through the economy and bring down prices. Several participants also felt that continuing to raise rates at such an aggressive pace risked instability and dislocation of the financial system. And now as for how high rates could ultimately go, officials said in the minutes there is, quote, "significant uncertainty about how high ultimately they will raise rates." But there was agreement that rates would move, quote, "somewhat higher than previously expected."

Now officials felt that purposefully moving to a, quote, "more restrictive policy stance" so potentially higher rates would actually be prudent risk management, given how hot inflation has been. Of course, these minutes are released with a three-week lag. They do not take into account some of the cooler readings we've seen recently on the consumer price index, the producer price index.

We will get further readings, another reading on CPI, PCE, and another jobs report before the Fed meets in mid December. The markets widely expecting them to raise by just 50 basis points instead of 75 basis points by next meeting. I just want to underscore here also that everything that we read in the minutes really echoes what Fed Chair Powell said in his press conference post-meeting three weeks ago. Back to you.