Fed is ready to move interest rates as high as needed on growing fears that high inflation would become entrenched

The minutes of the Federal Open Market Committee June policy meeting showed that the US central bank is on track for further big rate hikes as soaring inflation hit 40-year high, increasing pressure on the economy.

The recent data showed inflation in May rose to an annualized rate of 8.6% with increased risk of further rise, despite the central bank’s expectations price increases would peak in April that resulted in deteriorating near-term inflation outlook since the May policy meeting, justifying June’s 0.75% rate hike, as part of a move to restrictive monetary policy.

Recent sharp increase in consumer prices, especially in food and energy, with no evidence that Fed’s recent actions impacted fast-rising inflation, the US central bank faces significant risk that high inflation could become entrenched, but also that Americans would lose faith in the central bank’s power to bring raging inflation under control, as household face tough times with strong rise of the cost of living.

The policymakers were united in their willingness to increase interest rates as high as possible to bring inflation to the central bank’s 2% target, adding that 50 to 75 basis points increase in Fed’s July meeting, due later this month, would be likely appropriate.

Although economist lately talk a lot about the recession risk in coming months, the US policymakers pointed to improving outlook, as the latest data signal that the US gross domestic product was expanding in the current three-month period and another positive signal was seen from still tight labor market, however, they said the risk that situation could deteriorate exists, with potential strong negative impact on the economic growth from tight monetary policy.