Federal Reserve officials believed they needed to do more to slow the economy and fight painfully fast inflation back under control as of their meeting earlier this month, minutes of the meeting showed.

The notes, released on Wednesday, showed that “all participants” continued to believe rates needed to rise further, and that “many” thought monetary policy may need to be further tightened in light of easing conditions in the finance. markets in previous months.

“Overall, participants noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook,” the minutes said. “Several participants noted that a policy stance that turned out to be insufficiently restrictive could halt recent progress in subduing inflationary pressures.”

The bottom line is that policymakers were still focused on fighting to get inflation back under control, even before a series of recent data releases showed the economy has maintained a surprising amount of momentum into early 2023. have exhibited unexpected staying power, and a variety of data points have suggested that both the labor market and consumer spending remain strong. A release on Friday is expected to show that the Fed’s preferred inflation gauge rose rapidly on a monthly basis in January, with consumption growing at a solid pace.

That creates a challenge for Fed officials, who had expected their policy changes last year to slowly but steadily weigh on the economy, cooling demand and forcing companies to stop raising prices so quickly. If demand holds up, companies are more likely to find that they can continue to charge more without driving customers away.

Central bankers have raised interest rates at the fastest pace since the 1980s for the past year, pushing them from near zero right now in 2022 to more than 4.5 percent this month. Officials signaled in December that they may need to raise rates above 5 percent this year, but those estimates have been rising, perhaps above 5.25 percent. And key policymakers have made it clear that if the economy does not slow as expected, they will do more to ensure momentum cools.

Higher interest rates weigh on the economy by making it expensive for households to borrow to buy a new car or buy a house, and by making it more expensive for businesses to expand with credit. As those transactions stall, aftershocks filter through the economy, slowing not only the housing and auto markets, but also the job market and retail and service spending in general.

But the full effect of policy takes time, making it difficult for central bankers to assess in real time how much policy tightening is exactly the right amount to slow the economy and reduce inflation. Overdoing it could come at a cost: putting more people out of work, with lower incomes and more limited prospects than necessary.

However, the 1970s taught central bankers that allowing inflation to stay high for long without acting decisively to control it is also a painful mistake. Back then, the Federal Reserve allowed inflation to rise for years and eventually got so out of control that central bankers had to institute draconian rate hikes to contest prices. Unemployment jumped into double digits.

Officials cut their rate increases in February and have signaled they will continue raising rates by a modest quarter point per meeting pace in upcoming meetings. Some policymakers, including loretta master at the Federal Reserve Bank of Cleveland, have made it clear in public that they would have preferred a bigger move at the last meeting.

While the minutes acknowledged that “some participants” would have supported or even preferred a half-point move, they said smaller adjustments were seen as a way to balance risks.

Nearly all noted that the slowdown “would allow for appropriate risk management as the committee assesses the extent of further adjustment needed to meet the committee’s objectives,” the minutes said.

Now the question is how much should rates go up and how long will they stay there.

The challenge for central bankers is that several factors unfolding in early 2023 suggest that the economy retains substantial strength. Americans are landing jobs and earning raises, propping up family incomes. They are still sitting on piles of savings accumulated during the pandemic, although they are shrinking. Many senior households have just received an 8.7 percent cost-of-living increase on their first Social Security check of the year.

Even from January 31 to February 2. At the January 1 meeting, officials saw several reasons why inflation could remain too high: China’s reopening after coronavirus lockdowns could boost demand, Russia’s war in Ukraine could cause disruptions in the The supply and labor market could remain strong for longer than expected, according to the minutes.

However, policymakers also saw reasons why inflation could fade quickly. Among them, many global central banks have raised interest rates, and the United States could be vulnerable to slipping into full-blown recession after a period of more subdued growth. In addition, the country could face financial or economic problems if the congressional debate on raising the debt limit is prolonged.

“Several participants emphasized that a prolonged period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the economy in general,” the minutes said.