"Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time," the summary of the minutes, released on Wednesday, said.
"In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy."
The Fed’s published minutes from the December meeting of its Federal Open Market Committee were in line with the call made by Neel Kashkari, the central bank’s head for the Minneapolis region, who said on Wednesday that US interest rates need to rise about 1% more to achieve its target for fighting inflation.
"While I believe it is too soon to definitively declare that inflation has peaked, we are seeing increasing evidence that it may have," Kashkari wrote in an essay that appeared in the Wall Street Journal.
US inflation, as measured by the Consumer Price Index, expanded by 7.7% during the year to October, growing at its slowest pace in nine months after hitting a four-decade high of 9.1% during the 12 months to June.
The drop came after relentless rate hikes last year by the Fed, which added 425 basis points to rates between March and December. Prior to that, rates peaked at just 25 basis points, as the central bank slashed them to nearly zero after the global COVID-19 outbreak in 2020.
Despite its aggressive monetary tightening, inflation remains more than three times higher than the 2% per annum level preferred by the Fed, which has vowed to bring price pressures back to its target.
"It is appropriate to continue interest rate hikes at least at the next few meetings until we are confident that inflation has peaked," Kashkari said, referring to the Federal Open Market Committee (FOMC) meetings of the Fed that decide on rates. "The Fed must avoid cutting rates prematurely and causing inflation to spike again, as this would be a costly mistake."
If inflation has indeed peaked, economists say the Fed might raise rates by just 25 basis points at its next FOMC meeting in February - as opposed to the four jumbo-sized increases of 75 basis points carried out between June and November.
Still, if the central bank were to achieve the 5.4% rate level suggested by Kashkari, it may need to do as many as four 25-basis point hikes this year, as rates currently hover between 4.25% and 4.5%.
Kashkari cautioned as well that rates could ultimately go higher than 5.4%, depending on how the battle against inflation went. "In this stage, any indication of slow progress in lowering inflation will necessitate raising policy rates potentially significantly."
Only when inflation is well on its way to its 2% target can the Fed consider cutting rates, he added.