A majority of Fed policy makers at their April 28-29 meeting felt "some policy firming would likely become appropriate" if inflation stays persistently above the US central bank's 2.0 per cent target, according to minutes of the meeting released on Wednesday.
"To address this possibility, many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the Committee's future interest rate decisions," minutes of the meeting said.
Moreover policy makers "generally judged" they would need to keep the policy rate steady for longer than previously anticipated, the minutes said, with a "vast majority" noting an increased risk that inflation would take longer to return to their 2.0 per cent goal even as they "generally expected" stable labour market conditions in the near term.
Indeed, while several policy makers did feel a rate cut would be appropriate once inflation eases, that was fewer than the "many" who felt that way at the March meeting.
"Rate hikes are back on the table," said David Russell, global head of market strategy at TradeStation.
"The committee is getting more hawkish as Kevin Warsh joins."
The readout of the most divided Fed policy meeting in a generation added critical detail about shifts in two blocs of Fed officials waiting to greet Warsh - a growing one wary of the inflation arising from the war in Iran and of any talk of future rate cuts, and a diminishing one still leaning toward lowering borrowing costs.
The main culprit for the further hawkish drift among policy makers was - again - the inflation pressures that have been aggravated by the US-Israel-led war against Iran.
The nearly three-month-old conflict has driven up energy prices and fanned cost pressures across a widening array of goods and services.
The minutes showed that April's meeting - the last chaired by Jerome Powell - was the second in a row to feature more policy makers feeling a rate hike could be appropriate if inflation were to remain above target than at the immediately prior policy gathering.
After eight years with Powell at the helm, Warsh will convene his first Fed meeting on June 16-17 with no prospect seen for a change in rates, and certainly not a cut.
