Home Markets Fed Minutes November 2022:

Fed Minutes November 2022:

by SuperiorInvest

Federal Reserve officials agreed earlier this month that a smaller increase in interest rates should come once they assess the impact of policy on the economy, meeting minutes released Wednesday said.

Echoing statements made by several officials over the past few weeks, the meeting summary pointed to small rate hikes to come. Markets generally expect the Federal Open Market Committee, which sets rates, to back off to 0.5 percentage point in December after four straight 0.75 percentage point hikes.

Although officials have hinted that smaller steps are ahead, they still see little sign of inflation easing. But some committee members expressed concern about risks to the financial system if the Fed continued to push at the same aggressive pace.

“A substantial majority of participants concluded that a slowdown in the rate of increase is likely to be appropriate soon,” the minutes said. “Uncertain lags and magnitudes associated with the effects of monetary policy measures on economic activity and inflation were among the reasons why such an assessment is important.”

The memo noted that a smaller increase would give policymakers a chance to assess the impact of consecutive rate hikes.

The summary noted that several members said that “a slowdown in the growth rate could reduce the risk of instability in the financial system.” Others said they would like to wait until it slows down. Officials said they now see the balance of risks in the economy tilted to the downside.

Markets were looking for clues not only about what the next rate hike might look like, but also about how far policymakers think they will have to go next year to make satisfactory progress against inflation.

Officials at the meeting said it was just as important for the public to focus more on how far the Fed would go with rates, “and the evolution of policy after that became more important factors in achieving the committee’s goals than the pace of further developments.” is increasing in the target range.”

In recent days, officials have spoken largely in unison about the need to continue to fight inflation while hinting that they may reduce the level of rate hikes. This means a high probability of growth of 0.5 percentage point in December, but a still uncertain course after that.

Markets expect several more rate hikes in 2023, bringing the funds rate to around 5%, and then possibly some reductions by the end of next year.

The Federal Open Market Committee’s post-meeting statement added a line that markets interpreted as a signal that the Fed would make smaller hikes in the future. That sentence read: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lag with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Investors saw that as an endorsement of the reduced pace of hikes after four straight 0.75 percentage point hikes that put the Fed’s benchmark overnight lending rate in the range of 3.75-4%, the most in 14 years.

Several Fed officials have said in recent days that they expect a half-point move likely in December.

“They’re getting to a point where they don’t have to move as fast. That’s helpful because they don’t know exactly how much tightening they’re going to have to do,” said Bill English, now a former Fed official. with the Yale School of Management. “They emphasize that politics works with a lag, so it’s helpful if you can go a little slower.”

Inflation data has been showing some encouraging signs recently, remaining well above the central bank’s official target of 2%.

The consumer price index rose 7.7% in October from a year earlier, the lowest since January. However, the measure the Fed watches more closely, the personal consumption expenditure price index excluding food and energy, rose 5.1% year-on-year in September, up 0.2 percentage points from August and the highest since March.

These reports came out after the Fed’s November meeting. Several officials said they viewed the news positively, but would need to see more before considering easing policy tightening.

The Fed has recently been the target of criticism that it might tighten too much. He worries that policymakers are focusing too much on backward-looking data and missing signs that inflation is falling and growth is slowing.

However, English expects Fed officials to keep their foot together on the break until there are clearer signals that prices are falling. He added that the Fed is willing to risk slowing the economy as it pursues its goal.

“They have risks either way, if they do too little and they do too much. They’ve been pretty clear that the biggest risks they see are the risks of inflation going outside the box and the need to do really big tightening,” he said. he said, “Being Jay Powell is hard.”

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