Fed officials do not expect interest rate cuts this year

US central bankers do not expect it will be "appropriate" to start cutting interest rates this year with inflation remaining high, according to minutes of the latest Federal Reserve policy meeting released Wednesday.

The Fed has waged an all-out campaign to cool the world's biggest economy as inflation surged to a 40-year high last year, raising the benchmark lending rate seven times to ease demand.

This brought the rate to a range between 4.25 and 4.50 per cent by the Fed's December meeting, the highest level since 2007.

But Fed policymakers believe "a restrictive policy stance would need to be maintained" until data shows inflation is on a sustained downward path, according to minutes from the gathering last month.

The aim is to return inflation to two per cent.

"No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023," the meeting minutes added.

While the Fed had slowed its pace of rate increases in December after several steep rate hikes, the report released Wednesday showed officials were also concerned about any "misperception" of their moves.

Officials warned that an "unwarranted" easing of financial conditions, especially if driven by public misperceptions, would complicate efforts to restore price stability.

This is because monetary policy works importantly through financial markets, the report said.

A number of meeting participants also emphasized the need to "clearly communicate" that a slowing in the pace of rate hikes was not a sign of a weakening in resolve when it came to the inflation fight.

For now, inflation remains "persistent and unacceptably high," and a "sustained period of below-trend" GDP growth is needed, the report said.

Consumer spending growth has likely been helped by a strong labour market and households tapping excess savings from the pandemic -- but some officials note that budgets are being stretched in lower-income households.

Many consumers are shifting their spending to less expensive alternatives, some meeting participants said.

The labour market however remains "very tight" with low unemployment, robust payroll gains and elevated wage growth.

This has been a cause for concern, with officials worried that elevated wages will feed into higher services costs.

There are tentative signs of improvements on this front, but officials expect labour market supply and demand will "come into better balance" with an appropriately restrictive monetary policy path, the minutes said.

While the Fed remains committed to lowering inflation, policymakers also stressed the need to balance restrictive policy with "an unnecessary reduction in economic activity, potentially placing the largest burdens on the most vulnerable groups."