Federal Reserve officials have signaled they are likely to raise interest rates by 0.75 percentage point later this month, for the second straight meeting, as part of an aggressive effort to combat high inflation.

Policy makers left the door open to a larger, full-percentage-point increase at the July 26-27 gathering. But some of them simultaneously poured cold water on the idea in recent interviews and public comments ahead of their premeeting quiet period, which began Saturday.

Some officials pointed to signs that economic activity was softening as they raise rates at a historically brisk pace. “You don’t want to overdo the rate increases. A 75-basis-point hike, folks, is huge,” Fed governor

Christopher Waller
said Thursday at a conference in Victor, Idaho. “Don’t say, ‘Because you’re not going 100, you’re not doing your job.'”

Before last week, officials had signaled they were leaning toward a 0.75-point, or 75-basis-point, increase this month. After another scorching inflation report was released Wednesday, however, they indicated they would consider a full-point increase.

“We knew this inflation report was going to be ugly, and it was. It was just uglier than we thought,” said Mr. Waller. But, he added, “we don’t want to make policy on one data point, and that’s kind of a critical thing.”

The Labor Department reported the consumer-price index rose 9.1% in June from a year before, a new four-decade high, and showed inflation pressures broadening across the economy.

Demand surged last year from the reopening of the economy and aggressive government stimulus. More recently, Russia’s war against Ukraine aggravated supply-chain disruptions and drove up energy and commodity prices.

Fed officials have raised interest rates at their past three meetings, beginning with a quarter-point increase in March. They followed with a half-point rise in May and a 0.75-point increase last month, the largest since 1994. The Fed hasn’t raised rates by a full percentage point since it began using the federal-funds rate as its primary policy-setting tool in the early 1990s.

Moving rates up too dramatically could cause unnecessary weakness in the economy, Atlanta Fed President

Raphael Bostic

said Friday at a forum hosted by the Tampa Bay Business Journal in Florida.

Other Fed officials have signaled unease with the recent acceleration in rate rises. “A rapid pace of rate increase brings about the risk of tightening policy more quickly than the economy and markets can adjust,” said Kansas City President

Esther George
last week.

Since the Fed surprised markets with a larger-than-anticipated 0.75-point rate rise last month, investors have responded in ways that reflect growing worries about recession. Oil and commodity prices have tumbled, and long-term bond yields have declined.

On Friday, a University of Michigan survey of consumers’ long-term inflation expectations fell to its lowest level in a year, which weakened the case for a 1-percentage-point rate rise. Fed officials keep a close watch on households’ and businesses’ expectations of future inflation because they believe such expectations can be self-fulfilling.

Market-based measures of future inflation have also drifted to their lowest levels since Russian President Vladimir Putin’s invasion of Ukraine in late February.

“They can take comfort from that,” said

Laurence Meyer,
a former Fed governor. “This takes the pressure off of them. I don’t think they want to go 100.”

“It’ll be on the table, but trying to get a consensus or a supermajority to go for 100 [basis points] seems a little bit aggressive.”

— Jay Bryson, Wells Fargo chief economist

Investors and some analysts began anticipating a one-percentage-point rate increase at the July meeting after last Wednesday’s inflation report, with interest-rate futures contracts implying an 80% probability later that day, according to CME Group.

“The markets may have gotten ahead of themselves,” Mr. Waller said on Thursday. By Friday, the market implied probability had fallen to less than 30%.

Jay Bryson,
chief economist at Wells Fargo, was among those to call for the larger rate rise last week. But on Friday, he said the case had become less compelling. “It’ll be on the table, but trying to get a consensus or a supermajority to go for 100 seems a little bit aggressive,” he said.

Raising rates by a full percentage point could complicate how officials explain their policy strategy going forward. “If you are going to do 100, you better have a damned good story. They don’t have one now,” said Mr. Meyer, who runs the forecasting firm LH Meyer. Officials would have to clarify what had prompted another shift, and what would lead them to maintain an even more aggressive pace, for example.

A 0.75-point rate rise could allow officials to signal their ability to maintain that historically aggressive pace if demand and inflation stay hot or to moderate their increases if they see progress in slowing inflation and economic activity.

Officials could face more difficult decisions later this year over how much higher to push rates, especially if the economy shows more obvious signs of slowing, but with inflation still well above the Fed’s 2% target.

Richmond Fed President

Tom Barkin
said last week he is focused on raising rates above the inflation level that investors are expecting over the next two years. “Any particular 25-basis-point [change] is not nearly as important to me as the destination,” he said in an interview.


What should the Fed do at its next meeting? Join the conversation below.

Stronger-than-anticipated inflation could change that destination, giving urgency to raise rates faster and higher than otherwise. St. Louis Fed President

James Bullard
said Friday he anticipates lifting the fed-funds rate to just below 4% by December, up from his previous projection of around 3.5%.

With another 0.75-point rate rise at the coming meeting, the Fed will have raised the fed-funds rate by as much in the past five months as its combined increases between 2015 and 2018. It would lift the rate to a range between 2.25% and 2.5%, closer to officials’ estimates of a neutral rate that neither stimulates nor restricts demand.

Officials are seeking to raise rates to levels that slow spending, investment and hiring by reducing demand. “They got back to neutral fast,” said Mr. Bryson of Wells Fargo. “Now it’s a question of how fast do they get into restrictive territory, and how restrictive do they get.”

Economists surveyed by The Wall Street Journal this month put the chance of a recession sometime in the next 12 months at 49%. Most of the 62 respondents expect the central bank to raise the fed-funds rate at least above 3.25% by the end of the year and to maintain it at or above that level through next year. Most expect the Fed’s first rate cut to occur by the end of 2023.

Fed Chairman

Jerome Powell
has said in recent public appearances that it will get harder for the Fed to bring down inflation without a recession if energy prices continue to rise or supply-chain bottlenecks don’t improve. Ideally, officials would slow growth enough to cool price pressures but not so much that the economy tips into a downturn.

“There’s no guarantee we can do that,” Mr. Powell said last month. “The pathways have gotten narrower.”

Write to Nick Timiraos at nick.timiraos@wsj.com