Fed minutes: Restrictive policy "may well become appropriate"

Federal Reserve officials believed that it may be necessary to shift to a more "restrictive" monetary policy to get inflation under control, according to minutes of their last policy meeting.

Driving the news: The new minutes shed light on the internal debate at a meeting that concluded May 4, where the Fed raised its short-term target interest rate by half a percentage point and Chair Jerome Powell indicated it was likely to do so again.

For the moment, the minutes say, the officials "judged that it was important to move expeditiously to a more neutral stance," meaning a target interest rate that neither stimulates nor slows the economy.

• Fed officials generally believe that rate to be something near 2.5%.

Yes, but: The officials "also noted that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook," which raises the possibility of pushing rates yet higher in order to bring down inflation.

The policymakers appear inclined to move forward with half-percentage point rate hikes at the next two meetings, and then assess where things stand.

• "Most participants" judged that half-percentage point rate hikes "would likely be appropriate at the next couple of meetings."
• The rate increases now underway, "many participants" believed, will make the Fed "well positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments."

The open question: How far the Fed will ultimately go on rate hikes and how much damage they will do to the economy in the process.

• The meeting took place before a steep selloff in stocks and other assets that has fueled fears the economy could fall into recession.