Fed officials saw cost of doing too little to fight inflation outweighed doing too much

The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger

WASHINGTON, Oct 12 (Reuters) - Federal Reserve policymakers agreed they needed to move to a more restrictive policy stance - and then maintain that for some time - in order to meet the U.S. central bank's goal of lowering inflation, a readout of last month's two-day meeting showed on Wednesday.

The minutes of the Sept. 20-21 meeting showed many Fed officials "emphasized the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action."

At the meeting, many officials said they had raised their assessments of the path of interest rate increases that would likely be needed to achieve the committee's goals.

That said, several participants in the discussion said it would be important to "calibrate" the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.

At last month's meeting, Fed officials raised interest rates by three-quarters of a percentage point for the third straight time in an effort to drive inflation down from 40-year highs, and Fed Chair Jerome Powell vowed afterward that they would "keep at it until we're confident the job is done."

U.S. central bank policymakers have been united in their comments since that they see an urgent need to address inflation, which they fear risks becoming embedded, even if their aggressive policy tightening comes at a cost of higher unemployment.

The last several weeks have marked a turning point for financial markets that for much of the year had clung to a conviction that the Fed would swiftly reverse course next year and cut rates in the face of slowing growth and higher joblessness. Fed officials have openly pushed back on that expectation, saying they expect to leave rates elevated for some time after they have finished lifting them.

As markets fully digested the Fed's hawkishness, the result has been crushing losses for U.S. stock markets, rapidly rising yields on government debt and a surging dollar that has aggravated weak conditions in overseas markets.

Policymaker projections released at last month's meeting show the Fed's target policy rate, currently in a range of 3.00%-3.25%, its highest since 2008, rising to the 4.25%-4.50% range by the end of this year and ending 2023 at 4.50%-4.75%. The year-end 2022 projection suggests one more 75-basis-point hike is likely at the central bank's remaining two meetings of the year.

Recent inflation data has shown little to no improvement despite the Fed's aggressive tightening - it also announced 75-basis-point rate hikes in June and July - and the labor market remains robust with wages increasing solidly as well.

Reporting by Dan Burns; Editing by Paul Simao

Our Standards: The Thomson Reuters Trust Principles.