The Federal Reserve just released the minutes of its interest rate meeting, saying: If inflation fails to decline, the Federal Reserve may adopt "more restrictive" ('more restrictive') policies!

Fed officials in June stressed the need to fight inflation even if it meant a slowdown in an economy already on the verge of recession, according to meeting minutes released Wednesday. In raising its benchmark borrowing rate by three-quarters of a percentage point, central bank officials said the move was necessary to rein in rising costs of living to levels not seen since 1981.

Members said the July meeting could see another 50 or 75 basis point move. A basis point is one hundredth of one percent. "Participants agreed that the economic outlook required a shift toward a restrictive policy stance, and they recognized that a more restrictive policy stance may be appropriate if inflationary pressures continue to rise," the document said.

They acknowledge that policy tightening may come at a cost. "Participants recognized that policy tightening could slow the pace of economic growth for some time, but they viewed a return to 2 percent inflation as critical to sustained maximum employment," the meeting summary said.

The 75-basis-point hike came after an unusual process in which policymakers appeared to have a last-minute change of heart after weeks of saying a 50-basis-point hike was all but certain.

The rate-setting Federal Open Market Committee opted for a tighter path after data showed consumer prices were running at 8.6% over the 12 months and inflation expectations rose.

Officials at the June 14-15 meeting said they needed to take action to reassure markets and the public that they were serious about fighting inflation.

"Many participants believed that a significant risk now faced by the Committee was that high inflation could become entrenched if the public began to question the Committee's determination to adjust its policy stance as needed," the minutes said.

The document adds that these steps, along with communication about policy stance, "are critical to restoring price stability."

However, this approach comes as the U.S. economy falters .

Gross domestic product fell 1.6% in the first quarter and will fall 2.1% in the second quarter, according to the Atlanta Fed's data tracker. This would push the economy into a technical recession, albeit a mild one historically.

Fed officials expressed optimism about the economy's long-term path at the meeting, although they did slash their 2022 GDP forecast to 1.7% from the 2.8% predicted in March. They noted reports of slowing consumer sales and companies halting investment due to rising costs. The war in Ukraine, ongoing supply chain bottlenecks and China's coronavirus lockdown were also cited as concerns.

Officials expect inflation to be much greater than before and now expect overall personal consumption expenditures prices to rise 5.2% this year, compared with a previous estimate of 4.3%. The PCE 12-month inflation rate was 6.3% in May.

The minutes of the meeting pointed out that risks to the GDP outlook are low and inflation risks are high, as tightening policy may slow growth. The committee prioritized combating inflation.

Officials noted that policy moves to place the Fed's benchmark funds rate in a range of 1.5%-1.75% have produced results, tightening financial conditions and reducing some market-based measures of inflation.

Two such measures comparing inflation-indexed government bonds to U.S. Treasuries have fallen to their lowest levels since the fall of 2021.

The minutes of the meeting pointed out that after a series of interest rate hikes, the Fed will have the ability to evaluate the success of these measures before deciding whether to continue raising interest rates. They said "tighter policies" could be implemented if inflation failed to fall.

Officials said a series of increases would bring the funds rate to 3.4% this year, above the long-term neutral rate of 2.5%. Futures markets are pricing in the possibility that the Fed will have to start cutting interest rates as early as the summer of 2023.