NEW YORK, (Reuters) – The Federal Reserve may halt its monetary tightening in September if economic deterioration occurs and inflation drops, BofA strategists stated on Thursday. This was just a day after U.S. central banks released minutes of its May policy meeting.

To counter rising inflation, all Fed policymakers agreed that interest rates would be raised by 50% at their May 3-4 meeting. Participants also suggested further increases of this magnitude for June and July.

However, the Fed also struggled to control inflation while not causing recessions or driving the unemployment rate significantly higher. Participants acknowledged that this would prove difficult.

BofA strategists indicated in a note that the central banks would likely suspend tightening in September. If financial conditions worsen, they will leave their benchmark overnight rate at 1.75%-2%.

They stated that they had recently witnessed a subtle but significant shift in Fed communications. Fed officials suggested the possibility of downshifting/pausing as soon as they reached 2%, given the difficult macro background, tightening financial conditions and possibly softening inflation.

The Fed prefers to measure inflation at three times or more the 2% goal.

On Thursday, Fed Funds Futures traders priced in 50 basis point rate increases at the central bank’s June and July meetings as well as another 25 basis-point increase in September.

BofA acknowledged that this was not the base scenario but suggested that the central bank could see a Federal Funds Rate of 1.75%-2.2% as a normalization of policy, which would allow for a pause to assess the effect on inflation and jobs.

According to strategists, a pause on tightening could result in lower rates across U.S. Treasury yield curve.

The U.S. benchmark 10-year bond yield reached its lowest level in April, on Thursday. The bond market expects that inflation will slow down and the yield has dropped to 3.2% from May 9.

Others analysts don’t believe the Fed has changed to a more dovish position.

TD Securities strategists stated that they expect the central bank will raise rates beyond the neutral rate. This is the rate which does not stimulate nor restrict economic growth. However, this would be done gradually after the June-July policy meetings. The neutral rate is estimated by Fed policymakers to range between 2% and 3.3%.

Brown Brothers Harriman, an investment bank, stated in a note that “the views expressed in minutes are about all [they could] say at the beginning of an aggressive tightening cycles where no one really knows what rates will go.”

It stated that the Fed was facing a complex situation, and it is working to improve its hawkish credentials. However, it is not committing to any rate path.