The U.S. budget deficit is projected to fall to $1 trillion in 2022.

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Credit…Alex Brandon/Associated Press

Federal Reserve officials agreed at their last meeting that the central bank needed to move “expeditiously” to bring down the most rapid pace of inflation in 40 years, with most participants expecting as many as three half-a-percentage-point interest rate increases in the months ahead, minutes of the Fed’s May meeting showed.

They also discussed the prospect of raising interest rates beyond the so-called neutral rate, at which they are neither supporting nor dampening the economy, to further slow economic growth as policymakers try to combat inflation.

The officials noted that inflationary pressures were evident in a broad array of goods and services, causing hardship for Americans by eroding their incomes and making it hard for businesses to plan for the future. They said that further supply chain disruptions from the Russian invasion of Ukraine and pandemic lockdowns in China were also threatening to push inflation higher.

Their discussion highlighted the urgency of the task ahead, with some officials emphasizing “that persistently high inflation heightened the risk that longer-term inflation expectations could become unanchored,” making it more difficult for the central bank to return inflation to the 2 percent average annual increases that the Fed aims for.

Officials also debated whether price pressures might be beginning to abate. Several observed that recent economic data suggested inflation may no longer be worsening, though they said it was too soon to say whether it had peaked. While they said that the job market and consumer and business spending remained strong, they also expressed concern about “downside” risks to the economy “and the likelihood of a prolonged rise in energy and commodity prices.”

The Fed raised rates by half a percentage point in May, its biggest rate increase since 2000. Officials also detailed a plan to shrink the central bank’s $9 trillion in bond holdings and signaled that it would continue making money more expensive to borrow and spend until it gets inflation under control. In the May meeting, officials reiterated plans to begin winding down a stimulus program that has been in place since early in the pandemic on June 1.

The Fed’s policy rate is now set in a range of 0.75 to 1 percent.

Its decision to raise rates by a half percentage point in May initially buoyed Wall Street, which had been worried about a larger increase of 0.75, as some officials had been suggesting. Fed Chair Jerome H. Powell, speaking at a news conference after the May meeting, appeared to rule out such a large move, saying that it was “not something the committee is actively considering.” Investors took notice of that comment and stocks rallied.

But in the weeks since, Mr. Powell has made clear that economic conditions remain incredibly uncertain and that the Fed may need to go bigger — or smaller — depending on how things evolve.

“If things come in better than we expect, then we’re prepared to do less,” Mr. Powell said during an interview with “Marketplace,” a radio program distributed by American Public Media. “If they come in worse than when we expect, then we’re prepared to do more.”

Still, as of the May meeting, “most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings,” according to the minutes.

Fed officials have made clear that they will do what it takes to tame inflation, which hit 8.5 percent in the United States last month, the fastest 12-month pace since 1981. The Fed’s preferred measure of inflation, the Personal Consumption Expenditures price index, is also rising, though not as rapidly, climbing by 6.6 percent in March compared with a year ago.

While the Fed and many outside economists had expected prices to ease in 2021 as the economy reopened and snarled supply chains returned to more normal operations, that has not happened. Instead, prices have continued to rise, broadening to categories including food, rent and gas. China’s ongoing Covid lockdowns and the war in Ukraine have only exacerbated price increases for goods, food and fuel.

But as rates increase, the Federal Reserve will be watching keenly for signs that the trajectory of the economy is beginning to change. Data released Tuesday showed new home sales falling 16.6 percent in April from the month earlier, a sign that more expensive borrowing costs may be cooling the housing market. Surveys by S&P Global on Tuesday also pointed to slowing activity at service businesses in the United States and elsewhere, and continued supply chain disruptions at global factories.

Data released after the Federal Reserve’s May meeting showed the yearly pace at which prices are increasing moderated somewhat in April, but inflation rates are still uncomfortably rapid. The overarching question for the Fed is whether policymakers will be able to slow the economy enough to temper inflation without spurring a recession, which Mr. Powell and his colleagues have repeatedly acknowledged is likely to be a challenge. While Fed officials said their goal for now is to move policy back to a “neutral” stance, they may need to go beyond that if conditions deteriorate, essentially hitting the brakes on the economy, rather than just easing off the gas.

Participants “noted that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook,” according to the minutes.

“There are huge events, geopolitical events going on around the world, that are going to play a very important role in the economy in the next year or so,” Mr. Powell said last week. “So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control.”

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