The Fed's aggressive push to curb the hottest inflation in 40 years has convulsed financial markets as investors fret that tighter monetary policy will tip the US economy into recession.
Officials hiked rates by 75 basis points in June, the most since 1994, lifting their benchmark to a target range of 1.5% to 1.75%, and Chair Jerome Powell suggested they could do the same thing again in July.
He told reporters at a post-meeting press conference that another 75 basis-point increase, or a 50 basis-point move, was most likely on the table when policy makers gather July 26-27.
Officials went big in June — despite previously signaling they favored a 50 basis-point hike — after inflation data came in hot and a key indicator hinted that expectations for future price pressures could be accelerating among U.S. consumers.
Kansas City Fed President Esther George, who dissented against the increase in favor of a smaller hike, was the only one of the 18 policy makers who did not back moving by 75 basis points in June, the minutes showed.
Central bankers in June "recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist," the minutes said.
Policy makers noted that "if inflation expectations were to become unanchored, it would be more costly to bring inflation back down to the committee's objective."
Several officials since that gathering have echoed Powell's characterization of the likely outcome of the July rate decision, even as recession fears mount.
The personal consumption expenditures price index, which the Fed uses for its inflation target, has risen 6.3% since May 2021 — more than three times the central bank's 2% target.
Powell has said there are pathways for bringing inflation down while keeping the labor market strong, but acknowledged it will be a challenge.
Economists have downgraded growth forecasts on the heels of data showing weakness in consumer spending, a tightening of financial conditions and a decline in U.S. manufacturing activity.
Mortgage rates, which have doubled since the start of the year, are also cooling the housing market and some businesses are seeing lower demand.
Odds of a U.S. recession in the next year are now roughly one in three, according to Bloomberg Economics.