Fed Officials Were Wary About Slow Inflation Progress at June Meeting

Fed officials, worried about slow progress toward lowering inflation, watched the U.S. economy’s astonishing resilience cautiously at its June meeting. Some even wanted the central bank to raise rates last month instead of keeping them on hold. I eventually did, minutes from The rally showed.

Fed officials decided to keep rates unchanged at their June 13-14 meeting to give them more time to see how the 10 consecutive hikes so far have affected the economy. . At the same time, it released economic forecasts that hinted at two more rate hikes this year.

Minutes of the meeting, released Wednesday, further detailed the discussions leading up to the decision, including a debate among Fed officials on how the economy is shaped and what to do about it. emphasized that there was a difference of opinion.

“Almost all” Fed officials thought keeping the June rate on hold was “appropriate or acceptable,” but “some” supported rate hikes or expected continued strength in the labor market and continued momentum. Considering that, he said, “There was a possibility that he would support such a proposal.” The minutes showed “few clear signs” that the economy was on the mend and that inflation was getting back on track.

“Almost all participants felt that inflation remained well above the Committee’s long-term target and that the labor market remained tight meant that there were upside risks to the inflation outlook and that inflation remained high. The potential for stalling to unfix inflation expectations remains a key driver of inflation, it said, “policy outlook,” the minutes said.

The minutes highlighted just how difficult times are for the Fed. Inflation has fallen significantly overall, partly because food and fuel prices have cooled. Inflationary measures that remove these volatile categories, known as core inflation, are further halting progress. This caught the Fed’s attention, especially given signs that the economy in general is holding up.

“Core inflation has not shown a sustained easing since the beginning of the year,” Fed officials said at the meeting, according to the minutes, and consumer spending “on the whole” was “better than expected.” Officials said they were hearing mixed reports from businesses, with some saying economic conditions had deteriorated and others reporting “better than expected.”

Officials said prices for commodities — physical purchases like furniture and clothing — were rising slowly, but at a slower pace than expected in recent months. Rent inflation is expected to continue to subside, contributing to lower overall inflation, but a “few” officials said rent inflation was likely to slow on the back of declining home-for-sale inventories and a recent “lower-than-expected slowdown.” Rents on leases signed by new tenants worried the decline was less decisive than expected. “Some” Fed officials said prices for other services “showed little signs of slowing down over the past few months.”

Fed officials, including economists and analysts who inform policy-making Fed officials, continued to expect a modest recession to continue through late 2023 and early next year, according to the Fed’s minutes. But they saw “the likelihood that the economy will continue to grow moderately and avoid a recession almost as well as the criteria for a mild recession.”

Officials have maintained a watchful eye since the Fed meeting. Fed Chairman Jerome H. Powell said in a speech in Madrid last week that he expects gradual interest rate hikes to continue, but does not rule out the possibility that officials will return to a continuous rate policy. rice field.

“There was one meeting where we didn’t move, which kind of slowed the pace,” he explained. “Thus, assuming the economy develops more or less as expected, we expect a similar situation to continue.”

The question for investors is what will trigger the Fed to return to a more aggressive rate-hiking trajectory, or conversely, what will cause officials to hold off on future rate hikes.

Policymakers have made it clear that the course of rate hikes could change depending on what happens to the economy. Higher interest rates to cool household and business spending to levels that would force businesses to shut down if inflation shows signs of stagnation, the job market is unexpectedly strong and consumer spending remains strong. may indicate that it is necessary to How can you raise the price so much?

On the other hand, if inflation falls sharply, the job market cools, and consumers turn away sharply, the Fed may feel more comfortable withholding future rate hikes.

At this point, investors expect Fed raises interest rates July 25th and 26th meeting. And economists will be watching new job market data on Friday for the latest evidence of how the economy is evolving.

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