Fed officials held faith in disinflation at last meeting despite doubts, minutes show

Fed officials held faith in disinflation at last meeting despite doubts, minutes show

By Howard Schneider

(Reuters) – Although they acknowledged their disappointment with recent inflation figures, Federal Reserve officials indicated at their latest policy meeting that they remained confident that price pressures would ease, if only slowly, according to the minutes of the April 30-May 1 meeting of the US central bank. session.

“Participants … indicated that they continued to expect inflation to return to 2% in the medium term,” the minutes said, but “disinflation would likely take longer than expected.” We didn’t think so before.”

While the policy response for now “would involve maintaining” the central bank’s policy rate at its current level, the minutes published on Wednesday also reflect discussions on possible further hikes.

“Various participants mentioned their willingness to tighten policy further if inflation risks materialize such that such action becomes appropriate”, employing a modifier that does not fit into the usual set of words, as some , many and most, used. in the minutes to give an idea of ​​the number of officials who expressed a particular opinion.

The minutes also reflect a debate over the extent to which current monetary policy is restrictive given the strength of the economy, an important debate given the need for “sufficiently” restrictive policy to curb inflation .

Since that meeting, officials have dampened expectations of an imminent interest rate cut, which investors now expect to begin in September.

But even as Fed officials acknowledged the risk of a renewed rise in inflationary pressures in the economy, they largely viewed the data from earlier this year as a temporary setback in the battle to bring inflation back to the central bank’s 2% target.

This was the sixth consecutive meeting without a change in interest rates. At this point, policymakers appear likely to keep the Fed’s benchmark rate in the 5.25% to 5.50% range at least through September, after confidence in easing price pressures was shaken by higher-than-expected inflation in the first three months of this period. year.

EMERGING SIGNS

Fed Chairman Jerome Powell, at his post-meeting press conference on May 1, said it “will take longer than expected” for policymakers to be convinced that inflation will return to normal. decline towards 2% which had encouraged them for much of last year.

However, in the weeks that followed, there were signs that inflation was slowing again, demand was weakening and the labor market was becoming more balanced. Fed officials are closely watching for signs of a possible slowdown in consumption, and warnings from consumer-facing companies point in that direction.

Companies ranging from McDonald’s to PepsiCo have signaled in recent weeks the pressure U.S. consumers are facing from persistent food inflation and the rising costs of dining out, renting a home and getting of a mortgage loan.

“We remain cautious about our near-term growth outlook and expect discretionary consumer trends to remain under pressure in the near term,” Christina Hennington, Target’s chief growth officer, said on a media call. to discuss the retailer’s quarterly results.

Still, Fed officials said it would take longer to gain “greater confidence that inflation is moving sustainably toward 2%” — a standard for moving toward rate cuts than they have integrated into their political declarations since January.

On Tuesday, Fed Governor Christopher Waller set the deadline at “several months.”

“Absent a significant weakening of the labor market, I need several more months of good inflation data before I can comfortably support an easing of monetary policy,” he said. he declared at the Peterson Institute for International Economics in Washington.

(Reporting by Howard Schneider; editing by Paul Simao)

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