The Federal Reserve rate-setting committee began considering an eventual deceleration in the pace of monetary tightening at its July meeting, aligning with comments made by Chair Jerome Powell during the post-decision press conference. A record of the discussion showed no concerns raised about the loosening in financial conditions that occurred ahead of the meeting, and appears to ratify the market reaction that unfolded when Mr. Powell said “it likely will become appropriate to slow the pace of increases”.

Participants remained determined to bring inflation down to target, noting that price growth “remained unacceptably high”, with several expressing reservations about the recent drop in commodity prices, observing that “prices could quickly rebound,” with a number of upside risks to the outlook. Officials backed raising rates into “restrictive” territory, and maintaining those levels for “some time” to ensure that inflation was “firmly on the path back to 2 percent.”

However, officials also noted that the “Committee’s credibility with regard to bringing inflation back to the 2 percent objective, together with its forceful policy actions and communications, had already contributed to a notable tightening of financial conditions.” They judged “that the bulk of the effects on real activity had yet to be felt because of lags associated with the transmission of monetary policy”. Some participants remarked that “there was also a risk that the Committee could tighten the stance of policy by more than necessary to restore price stability.”

The minutes need to be taken in conjunction with more recent information: On a month-over-month basis, prices were unchanged in July — a welcome sign of abating inflationary pressures. But other releases have shown unexpected strength in job growth, business investment, and retail sales — raising questions over whether demand is slowing sufficiently.

Mr. Powell will deliver an update on the Fed’s economic views when he speaks at the Jackson Hole conclave of global central bankers next week, and another round of key data releases will land before the next committee outing on September 21. Markets are assigning roughly 40 percent odds to a 75 basis-point hike at the meeting, down from 60 percent just prior to the release. The dollar is slightly weaker.

Karthik Sankaran, Senior Market Strategist