Federal Reserve officials were less united at their June meeting than their unanimous decision suggested, as some favored interest-rate increases but went along with the move to leave policy unchanged.

“Almost all participants judged it appropriate or acceptable to maintain the target range for the federal funds rate at 5% to 5.25%,” minutes from the June 13-14 meeting said. “Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal.”

Officials supporting a hike cited tight labor markets and relatively few signs that inflation was slowing toward the 2% goal.

The minutes shed light on how tricky the decision was for policymakers to achieve. Even as they left rates unchanged, almost all officials said that additional increases would likely be appropriate, with most emphasizing that post-meeting communications would be essential to convey that message.

The readout provides more clarity to Fed watchers, who were perplexed by the decision to leave rates unchanged in a 5% to 5.25% target range, while at the same time forecasting further increases later this year.

Two-year Treasury yields declined following the report, the S&P 500 stocks remained lower and the dollar maintained gains.

The Fed’s decision last month was the latest slowdown in policy after officials lifted rates at the fastest clip in four decades last year, including four consecutive 75-basis-point hikes. They started reducing that speed in December and delivered quarter-point hikes at each of the first three meetings this year.

Just before the release of the minutes, markets were penciling in a roughly 80% chance of a 25 basis-point increase this month and weren’t foreseeing a further hike later in the year, according to fed funds futures data on Bloomberg.

Officials have said the quick move up in interest rates since early 2022 allows them room to now assess how that tightening is affecting the economy. They are also watching for signs of economic spillovers from the March banking turmoil.

The meeting left some Fed watchers and investors confused about the central bank’s direction, but in several public appearances since then, Chair Jerome Powell has emphasized that most of his colleagues on the policy-setting Federal Open Market Committee support more rate increases.

“A strong majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year,” Powell said at a conference in Madrid hosted by the Bank of Spain last week. “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.”

While the headline reading of the personal consumption expenditures index — the Fed’s preferred gauge for price changes — declined in May, the core measure suggested underlying inflation may be stalling. PCE minus food and energy rose an annual 4.6% in May and is little changed since December. 

A bifurcation has started to form among officials that were near-unanimous last year, during the early phase of the tightening cycle. Some officials now argue that the cooling in broad price indexes shows disinflation taking hold, while others say that little movement in core gauges reflect deep-rooted imbalances that need fixing.

Most officials have pointed to the resilience of the U.S. economy as an overall positive feature that has so far kept a recession at bay, but some elements of it — such as the persistently strong labor market — have also raised concern about how much time it will take to bring inflation down to the Fed’s 2% goal.

The economic forecast prepared by the staff for the June meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery.

“Given the continued strength in labor-market conditions and the resilience of consumer spending, however, the staff saw the possibility of the economy continuing to grow slowly and avoiding a downturn as almost as likely as the mild-recession baseline,” according to the minutes.

Officials will get two key economic reports before the July 25-26 FOMC meeting: the June employment report Friday and readings on consumer prices for the same month on July 12.

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