© Reuters
Investing.com – An earlier release has now been released detailing the committee’s inflation outlook and outlook, revealing their intentions regarding US interest rates and how the recession pattern will be avoided or addressed if it becomes inevitable.
The minutes revealed that Fed officials were surprised by the pace of inflation and indicated in their latest meeting that they expected higher interest rates to remain in place until prices fell, according to the bank’s meeting minutes. central published Wednesday in September.
In discussions that led to a 0.75 percentage point rate hike, policymakers noted that inflation particularly affects low-income Americans. They reiterated that rate hikes are likely to continue and higher rates will stabilize until there are clear signs of falling inflation.
The summary of the meeting stated: “The participants felt that the Committee needed to move to, and therefore maintain, a more restrictive political position in order to fulfill the legislative mandate of the Committee to promote maximum price stability.”
Officials further noted that with inflation “so far it has shown little sign of abating, they have increased their assessment of the federal funds rate trajectory that may be needed to meet the committee’s goals.”
The meeting took place before the latest data stream showed that inflationary pressures remain high, but not at the pace at the beginning of the year. The Federal Reserve’s preferred inflation measure for consumer price spending rose 6.2% from a year ago – 4.9% excluding food and energy – in August, according to last week’s data which was well above the central bank’s 2% target. Wednesday’s report showed that producer prices rose 0.4% in September.
Inflation is higher than expected … and stagnation is the solution
“Participants noted that inflation remained unacceptably high and well above the committee’s long-term target of 2%,” the minutes read. “Participants commented that recent inflation figures have generally been above expectations and that, on the contrary, inflation has declined more slowly than they previously expected.”
Federal Open Market Committee members pointed this out during the meeting The economy must slow down for inflation to calm down.
They lowered their forecasts for the economy, predicting that GDP will grow at a rate of just 0.2% per year in 2022 and only 1.2% in 2023, well below the trend and a decline. significant compared to 2021, which saw the strongest gains since 1984.
They said that inflation was driven by supply chain problems that were not limited to goods but also underscored the labor shortage. However, officials also expressed optimism that the policy would help ease the labor market and lower prices.
“Participants felt that inflationary pressures will gradually ease over the next few years,” says the summary.
The meeting ended with the open market approving for the third consecutive time a 0.75 percentage point increase, while raising interest rates between 3% and 3.25%. Markets broadly expect to accept a similar size hike at their next meeting in early November.
The minutes said FOMC members indicated that “it will be appropriate at some point to slow down the pace of policy rate hikes by assessing the effects of cumulative policy adjustments on economic activity and inflation.”
They said the time would come after the federal funds rate “reached a sufficiently low level,” after which “it is likely that it is appropriate to maintain that level for some time until there is convincing evidence that inflation is on track to return to the 2 percent Goal level. ” . “
The summary of the economic forecasts at the meeting indicated that the “final interest rate”, or end point for rate hikes, would be around 4.6%. Markets expect the Fed to rise in early 2023 and then keep rates there throughout the year.
