WASHINGTON – Federal Reserve officials indicated at their latest meeting that there are signs that inflation is easing, but not enough to counter the need for further interest rate hikes, minutes of the meeting released Wednesday showed.
While Jan. 31–Feb. One session ended with smaller rate hikes than most introduced since the start of 2022, with officials stressing that their concerns about inflation loom large.
Inflation “remained well above” the Fed’s 2% target, minutes established. This came with labor markets “remaining very tight, contributing to continued upward pressure on wages and prices”.
Therefore, The Fed approved a 0.25 percentage point rate hike that was the smallest increase since the first of this tightening cycle in March 2022. The move brought the Fed funds rate into a target range of 4.5%-4.75%. However, the minutes said the reduced pace was associated with a high level of concern that inflation was still a threat.
“Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly rate of price growth, but stressed that substantially more evidence of progress across a wider range of prices would be needed to be sure that inflation is at a sustained level. descending path,” the note read.
The summary reiterated that members believe “ongoing” rate increases will be necessary.
Shares fell after the announcement minutes, while Treasury yields shed most of their losses from earlier in the session.
Although the quarter-point increase was unanimously approved, the minutes noted that not everyone was on board.
“Several” members said they wanted a half-point, or 50 basis point, hike that would show even greater commitment to reducing inflation. Basis point is equal to 0.01%.
Since the meeting, regional presidents James Bullard of St. Louis and Loretta Mester of Cleveland said they are among a group that wants a more aggressive move. However, the minutes do not specify how many were “a few” or which members of the Federal Open Market Committee wanted the half-point increase.
“Participants favoring a 50 basis point increase noted that a larger increase would more quickly bring the target spread closer to levels they believed would achieve a sufficiently restrictive stance, given their views on the risks to achieving price stability in time. manner,” the minutes read.
Since the meeting, Fed officials have emphasized need to stay alert although he expresses optimism that recent inflation figures have been encouraging.
In an interview with CNBC on Wednesday Bullard reiterated his conviction that going higher earlier would be more efficient. But despite his push for more aggressive short-term policy, he said he thought the cap or terminal rate should be around 5.375%, roughly in line with market prices.
Economic data from January showed inflation running at a lower pace than its peak in the summer of 2022, but still creeping in.
The Consumer price index up 0.5% since December and is 6.4% higher than in the same period last year. The producer price index, which measures input costs at the wholesale level, rose 0.7% month-on-month and 6% year-on-year. Both values were above Wall Street expectations.
The labor market is also hot, suggesting that the Fed’s hikes, while hitting the housing market and some other rate-sensitive areas, have yet to trickle down to much of the economy.
Despite the comments from Mester and Bullard, market prices still point to a strong likelihood of another quarter percentage point hike in March, followed by a few more to take the funds rate to a peak of 5.25%-5.5%. If the rate landed around the middle of that target, it would be the highest funds rate since 2001.
Markets fear that if the Fed moves too fast or too far, it could plunge the economy into recession.
The minutes noted that “some” members see the risk of a recession as “elevated”. Other officials have said publicly that they think the Fed can avoid a recession and achieve a “soft landing” for the economy, which will see a significant slowdown in growth but not a contraction.
“Participants observed that uncertainty associated with their outlook for economic activity, the labor market, and inflation was high,” the minutes said.
The risk factors listed included war in Ukrainethe economic reopening in China and the possibility that the labor market could remain tighter than expected.
