Fed officials were cautious about slowing inflation progress at the June meeting

Fed officials were cautious about slowing inflation progress at the June meeting

Federal Reserve officials were concerned about slow progress toward low inflation and were looking at the surprising stability of the U.S. economy at the June meeting — so much so that some saw rates last month as a central bank, rather than keeping them steady. wanted to increase finally did, to minutes The meeting showed

Fed officials decided to leave interest rates unchanged at their June 13-14 meeting to give them more time to see how their previous 10 straight hikes are affecting the economy. At the same time, he released economic forecasts that suggested he would raise rates twice this year.

Minutes of the meeting released Wednesday offered more details on the debate over that decision — and underscored that Fed officials were split on how the economy is shaping up and what to do about it.

While “nearly all” Fed officials thought it was “appropriate or acceptable” to leave rates unchanged in June, “some” were either in favor of raising interest rates or “could support such a proposal” given the continuing strength in the labor market. , given the continued momentum in the economy, and “some clear signs” that inflation is back on track, as shown in the minutes.

“Almost all participants noted that, with inflation still well above the Committee’s long-term target and the labor market remaining tight, there are risks to the upside of the inflation outlook or the possibility that persistently high inflation could skew inflation expectations. remain the major factors shaping it. policy approach,” the minutes said.

The minutes underscored what a difficult moment this is for the Fed. Inflation has eased significantly on an overall basis, but this is partly because food and fuel prices are coming down. An inflation measure that removes those volatile categories — known as core inflation — is making much headway. This has caught the attention of the Fed, especially given the signs that the broader economy is on the mend.

According to the minutes, Fed officials said at the meeting, “the sustained decrease in core inflation not seen since the beginning of the year,” and they noted “generally” that consumer spending has been “stronger than expected.” Officials said they were hearing a variety of reports from businesses, as some saw weaker economic conditions and others reported “greater strength than expected”.

Officials noted that the rise in prices of goods – physical purchases such as furniture or clothing – moderated, but occurred less sharply than expected in recent months. While rent inflation was expected to remain low and help moderate overall inflation, “some” officials were concerned that this would be less decisive than expected amid low unsold housing inventory and the recent “lesser-than-expected downturn”. Will come down In the rental of leases signed by new tenants. “Some” Fed officials noted that other service prices “have shown some signs of slowing over the past few months.”

Fed staff members, the economists and analysts who inform Fed officials who set policy, continue to expect a mild recession to begin in late 2023 and extend into early next year, Fed minutes showed. Is. But he observed that “the economy’s chances of growing slowly and avoiding a recession are about the same as the mild-recession baseline.”

Officials have maintained a cautious stance since the Fed meeting. The Fed chairman, Jerome H. Powell, said during an appearance in Madrid last week that he expected the slow pace of interest rate hikes to continue – but he did not rule out that officials could make back-to-back rate moves. But can return.

“We had a meeting where we didn’t move forward, so it’s kind of a restraint of motion,” he explained. “So I would expect something like this to continue, assuming the economy continues to grow as expected.”

The question for investors is what will prompt the Fed to return to a more aggressive path to rate hikes — or, on the other hand, what will cause officials to hold off on future rate hikes.

Policy makers have made it clear that depending on what happens with the economy, the path to hike in interest rates could change. If inflation is showing signs of holding steady, the job market is unexpectedly strong and consumer spending continues to rise, this may suggest that even higher interest rates are needed to reduce household and business spending to the extent that There will be a need where companies will be forced to stop. Raising prices so much.

On the other hand, the Fed may feel more comfortable holding off on future rate hikes if inflation is easing rapidly, the job market is cooling and consumers are increasingly retrenching.

for now, investors expect Fed will raise interest rates Its meeting is on July 25-26, And economists will be closely watching fresh job market data to be released on Friday for the latest evidence on how the economy is developing.

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