Federal Reserve officials were divided earlier this month on whether to pause their interest rate hikes at their upcoming meeting in June, according to the minutes of their May 2-3 meeting released Wednesday.

“Several (policymakers) noted if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary” — Fed parlance for a pause — the minutes said.

At the same time, “some” officials said that the persistence of high inflation meant that “additional (rate hikes) would likely be warranted at future meetings.”

Yet those supporting a pause may have the upper hand. Chair Jerome Powell and the officials closest to him have signaled in speeches over the past week that they're likely to support a pause in rate hikes at their next meeting in mid-June.

“We think it won’t be difficult to get consensus on a June pause if it is coupled with the promise that further hikes could be needed if the data do not cooperate,” Ellen Zentner, chief U.S. economist at Morgan Stanley, wrote in a research note.

The Fed raises its key rate to lift the cost of mortgages, auto loans, credit card borrowing and business loans. By making borrowing more expensive, the Fed seeks to slow growth and inflation. Fed officials have raised their benchmark rate for 10 straight meetings, to about 5.1 per cent, a 16-year high.

Wednesday's minutes also underscored the unusually uncertain economy that Fed officials are assessing as they consider their next policy moves. The officials remained unsure about how severely the collapse of three large banks in the past two months might lead to a pullback in lending. And the conflict over the federal government's debt limit could trigger a recession if President Joe Biden and House Republicans fail to agree by sometime in early June to raise the debt limit and avoid a first-ever default on Treasury securities.

At the Fed meeting this month, officials “generally expressed uncertainty about how much more” they should raise interest rates, the minutes said.

That divergence has pointed to a likely compromise: Instead of an indefinite pause to rate hikes, the officials may back a so-called “skip”: Under this scenario, the Fed wouldn’t raise rates at the June meeting but would signal that it remains open to future hikes if inflation stays too far above its 2 per cent target in the coming months.

Though that possibility wasn’t explicitly discussed at this month's meeting, the minutes said that “some” officials wanted to make clear that any signal that the Fed would pause its hikes in June “should not be interpreted as signaling either that” the central bank would cut rates soon “or that further increases in the target range had been ruled out.”

At a news conference after the Fed officials met on May 3, Powell said there had been a discussion about forgoing rate increases at future meetings, though he wouldn’t say how many officials had favored doing so.

“There’s a sense," Powell said then, "that we’re much closer to the end of this than to the beginning. We feel like we’re getting close or, maybe even there.”

Also Wednesday, Christopher Waller, a member of the Fed’s Board of Governors, suggested that inflation remains too high and hasn’t made much progress toward the Fed’s 2 per cent target. As a result, Waller indicated, it’s too soon to say what the Fed should do at its next meeting in mid-June.

It’s not yet clear, he said, if the Fed’s key rate is high enough to slow borrowing, spending and inflation.

“I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2 percent objective,” Waller added. “But whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks.”