A majority of Federal Reserve officials who attended a September policy meeting believed one more interest rate hike would "likely be appropriate" in the future while some argued no more increases would be necessary, according to meeting minutes released Wednesday.
Members also found an area of complete agreement at the Sept. 20 gathering of the Federal Open Market Committee: Rates would likely remain elevated for some time.
The Fed held interest rates steady at a 22-year high at that September meeting while signaling another rate hike will be needed later this year to bring inflation back to its 2% target.
The minutes indicated "almost all" officials wanted to hold rates steady to allow more time to asses data, implying that a few members would have favored a raise.
The central bank maintained the range for its benchmark interest rate at 5.25%-5.5%, but held projections for interest rates to finish the year in a range of 5.5%-5.75%.
"A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted," the minutes released Wednesday read.
Several members said they felt with the policy rate likely at or near its peak, the focus should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels. A few members noted they’ll monitor the real benchmark policy rate — or the interest rate adjusted for inflation — in assessing the level for rates.
Officials felt they should "proceed carefully" and that policy decisions at every meeting would continue to be based on the full picture of economic data.
Several noted that shrinking the Fed’s balance sheet could continue even when the central bank cuts rates eventually.
The Fed minutes, released with a three-week lag, come after the yield on the 10-year Treasury has surged by more than 20 basis points since the September meeting — and more than 50 basis points before the Israeli-Hamas conflict.
The surge in long-term yields has a cadre of Fed officials saying that if yields remain high the bond market is doing some of the work for the Fed. Dallas Fed President Lorie Logan said Monday that if long-term interest rates remain elevated there may be less need for the Fed to act.
Fed Governor Chris Waller chimed in Wednesday, saying the financial markets will do some of the work for the Fed.
“We're just kind of keeping a very close eye on that and then we'll see how these higher rates feed into what we're trying to do in policy,” said Waller.
Minneapolis Fed President Neel Kashkari also said Tuesday it's possible that higher long-term bond yields will leave less work for the Fed to do when it comes to raising interest rates, but he’s not sure yet and needs to see more data.
"It's certainly possible that higher long-term yields may do some of the work for us in terms of bringing inflation back down," said Kashkari.
"But if those higher long-term yields are higher because their expectations about what we're going to do has changed, then we might actually need to follow through on their expectations in order to maintain those yields."
But while bond yields have risen, Boston Fed President Susan Collins is not taking further tightening off the table.
"While we are likely near, and could be at, the peak for policy rates, further tightening could be warranted depending on incoming information," Collins said in a speech Wednesday.
She also thinks odds of a soft landing are higher now.
Both Logan and Waller think excess supply of Treasurys could contribute to higher bond yields. Logan said she expects that as the Fed continues to shed Treasurys from its bloated balance sheet, it means more investors will be required to hold Treasurys instead of the Fed, contributing to higher yields.
Waller agreed supply is some of the reason for higher yields.
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