Federal Reserve minutes: Policymakers saw a longer path to rate cuts

Federal Reserve minutes: Policymakers saw a longer path to rate cuts

WASHINGTON (AP) — After several surprisingly high inflation figuresFederal Reserve officials concluded at a meeting earlier this month that it would take longer than they previously thought for inflation to cool enough to justify a cut in their key interest rate , now at its highest level in 23 years.

Minutes Results from the May 1 meeting, released Wednesday, showed officials also questioned whether their benchmark rate was exerting enough of a drag on the economy to further slow inflation. Many officials indicated they weren’t sure how restrictive the Fed’s rate policy was, according to the minutes. This suggests that policymakers were unclear whether they we did enough to curb price growth.

High interest rates “may have smaller effects than in the past,” the minutes said. Economists have noted that many American owners, for example, refinanced their mortgages during the pandemic and set very low mortgage rates. Most large companies have also refinanced their debt at low rates. These two trends have softened the impact of the Fed’s 11 rate hikes in 2022 and 2023.

Such concerns have sparked speculation that the Fed may consider raising, rather than cutting, its influential benchmark rate in the coming months. Indeed, the minutes note that “various” officials “mentioned a desire” to increase rates if inflation accelerated again.

But at a news conference just after the meeting, Chairman Jerome Powell said it was “unlikely” that the Fed would start raising its key rate again – a remark that temporarily boosted financial markets.

However, since the meeting, the latest monthly jobs report showed that hiring slowed in April, and a report on inflation government data showed that price pressures also eased last month. These trends have likely further reduced the likelihood of a Fed rate hike.

On Tuesday, Christopher Waller, a key member of the Fed’s Board of Governors, largely dismissed the prospect of a rate hike this year.

In a report Published after the May 1 meeting, Fed officials acknowledged that the nation’s progress in reducing inflation had stalled in the first three months of this year. As a result, they said, they would not start cutting their policy rate until they had “greater confidence” that inflation would gradually return to their 2% target. Rate cuts by the Fed would ultimately lead to lower costs for mortgages, auto loans and other forms of borrowing for individuals and businesses.

Powell also said at the time that he still expected inflation to slow further this year. But, he added, “my confidence in that is lower than it was because of the data we saw.”

After peaking at 7.1% in 2022, inflation measured by the Fed’s preferred gauge has steadily slowed through most of 2023. But over the past three months, that gauge has been running at a faster pace than what is consistent with the central bank’s inflation target.

Excluding volatile food and energy costs, prices rose at an annual rate of 4.4% in the first three months of this year, significantly higher than the 1.6% pace recorded in December. The acceleration dampened hopes that the Fed would soon be able to cut its key rate and achieve a “soft landing,” in which inflation would fall to 2% and a recession would be avoided.

On Tuesday, Waller also said he would “need to see several more months of good inflation data before” supporting a rate cut. This suggests the Fed would likely not consider rate cuts until September at the earliest.

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