Federal Reserve (Fed) officials remained mostly concerned at the last meeting about the risk that inflation may not abate and suggested that they could continue raising interest rates. “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the minutes of the July 25-26 meeting published on Wednesday show.
“Some participants commented that while economic activity has been resilient and the labor market has remained strong, there remain downside risks to economic activity and upside risks to the unemployment rate,” the Fed said in the transcript of the announcement. happened at that meeting, in which the governors led by Jerome Powell opted to raise interest rates.
Policymakers raised their benchmark rate target range by a quarter point at the meeting, to 5.25%-5.5%, the highest level in 22 years. That marked the resumption of increases after they left rates unchanged at the previous meeting for the first time since early 2022.
While quarterly projections last updated in June showed most officials at the time were in the works for two additional hikes in 2023, Chairman Powell was stressed after the July decision that the Fed would make decisions at a meeting in meeting and with an approach dependent on emerging macroeconomic data.
“We intend to remain tight again until we are confident that inflation is coming down sustainably toward our 2% target and we are prepared to endure further if that is appropriate,” Powell told reporters and analysts on Tuesday. July 26.
“Most respondents had a modal expectation that a rate hike in July would be the last of this tightening cycle, although most respondents also perceived that additional monetary policy tightening was possible after the meeting of the July FOMC,” the minutes state.
Consensus at the Fed crumbles
Public comments from Federal Open Market Committee officials since the July meeting suggest that the strong degree of consensus behind the aggressive tightening campaign of the past year and a half may be beginning to unravel, Bloomberg reports. Some, like Philadelphia Fed President Patrick Harker, have indicated that the central bank may not need to continue raising interest rates. Others, including Fed Governor Michelle Bowman, take the opposite view.
“Several participants believe that with the monetary policy stance in tight territory, the risks to the achievement of the committee’s objectives became more balanced, and it was important that the committee’s decisions balanced the risk of inadvertent tightening of policy against the cost of insufficient tightening,” the minutes stated. Investors are not currently expecting another rate hike this year, according to futures contracts, although the likely odds of a hike at the Oct. 31-Nov. 1 meeting are higher than for its next Oct. 19-Nov. September 19 20.
Kansas City Federal in Wyoming next week, where Powell is expected to deliver a speech. Key economic data released since the July meeting mostly supports the notion that Fed officials have time to deliberate on the need for further tightening.
Quarterly labor cost releases showed a slowdown in the pace of increases, while consumer price (CP) measures excluding food and energy upset the smallest monthly gains in more than two years. The minutes also conveyed optimism about the outlook for the US economy, as influential Fed staff economists “no longer judged that the economy would enter a mild recession towards the end of the year.” However, they expected the economic one in the next two years “to remain below their estimate of potential output growth, leading to a small increase in the unemployment rate compared to its current level.”
