WASHINGTON – Uncertainty around the path of the US economy, including difficulties estimating the state of financial markets, potential oil price shocks and the impact of labour strikes, pushed Federal Reserve officials into a cautious stance at their policy meeting in September, as debate proceeded over whether more interest rate hikes would be needed.

“A vast majority of participants continued to judge the future path of the economy as highly uncertain,” according to minutes of the Sept 19 to 20 meeting that were released on Wednesday.

The US central bank agreed at that meeting to hold rates steady, even as a 12-7 majority indicated in new projections that one more hike might be needed by the end of the year to ensure inflation returns to the Fed’s 2 per cent goal.

Data volatility and revisions to prior statistical releases posed one set of problems in assessing the economy, the minutes said, as did determining underlying parameters like the neutral rate of interest, the impact of rising “real” rates being bid up by markets, and the degree to which tighter credit would ultimately curb business borrowing and spending.

All of that, the minutes said, was seen as “supporting the case for proceeding carefully in determining the extent of additional policy firming that may be appropriate”.

The minutes noted that “participants generally judged” that risks had become more two-sided.

While global commodity markets and a strong housing market might lead to higher inflation, the minutes said, tighter financial markets, slowing global growth and recent labour strikes posed risks to economic growth and jobs.

Though policymakers are publicly aligned that there is still “work to do” with key measures of inflation remaining well above 3 per cent, several have in recent days leaned into the possibility that rates may not in fact need to go higher.

The rise in US Treasury yields in recent months may be doing some of the Fed’s work for it, Dallas Fed president Lorie Logan and Fed governor Christopher Waller have argued, obviating any urgent need for another rate hike, and possibly for one altogether.

Still, the minutes showed, “all participants agreed that policy should remain restrictive for some time until (the Fed’s rate-setting) committee is confident that inflation is moving down sustainably towards its objective.”

The minutes showed increased concern about the risks of going too far with rate increases and slowing activity so much that it causes companies to lay off large numbers of workers.

Fed officials have said the economy’s steady performance, despite the aggressive rate hikes over the past 19 months, has kept unemployment low even as inflation has fallen from the peaks seen in mid-2022.

The debate is now over whether prices will continue to fall without any further rate increases, or whether slightly more restrictive monetary policy will be needed.

Investors since the September meeting have steadily discounted the likelihood of another Fed rate increase.

After the release of the minutes, they gave only a 9 per cent chance of a hike at the Oct 31 to Nov 1 meeting and a roughly 28 per cent chance at the Dec 12 to 13 session, according to CME Group’s FedWatch Tool. REUTERS