Some Fed officials willing to raise rates if needed: meeting minutes

Some Fed officials willing to raise rates if needed: meeting minutes

Federal Reserve officials said at their latest policy meeting that rates would likely stay high for longer if inflation numbers continued to disappoint, while some policymakers spoke of a willingness to raise rates if necessary.

“Various participants mentioned their willingness to tighten policy further if inflation risks materialize in such a way that such action becomes appropriate,” according to the minutes of the last meeting, which took place on April 30 and May 1.

Stocks fell from record lows after the minutes were released.

“The Fed has officially acknowledged that inflation remains higher than it would like,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

“Although they wanted to lower rates, they will not be able to do so in the near future.”

The Fed decided on May 1 to keep its benchmark interest rate in a range of 5.25% to 5.50%, a 23-year high, as it attempts to bring inflation back to its target of 2%.

First-quarter inflation figures were higher than expected, but April figures released after the Fed’s last meeting showed some easing of these price pressures.

The consumer price index on a “core” basis, which excludes food and energy prices, rose 3.6% year-on-year, a slowdown from the increase of 3 .8% observed in March.

At their latest meeting, Fed officials cited disappointing first-quarter inflation numbers and indicators pointing to strong economic momentum as reasons they believe they will need to keep rates high for longer.

A few believed that “unusually strong seasonal trends” might have contributed to January’s sharp rise in inflation, while several noted that certain components that typically show volatile price changes had boosted the recent numbers.

But some stressed that recent increases in inflation have been relatively broad-based and should not be ignored.

There was also a discussion about how restrictive the current level of interest rates is.

Many acknowledged uncertainty over how restrictive interest rates really are, noting that high rates might have less impact than in previous cycles or that long-term rates that neither boost nor slow economic growth might be higher than expected.

“A number of participants noted uncertainties regarding the degree of restrictiveness of current financial conditions and the associated risk that these conditions are insufficiently restrictive on aggregate demand and inflation,” the minutes said.

The minutes, released three weeks behind schedule, come after a slew of Fed officials publicly called for keeping rates at current levels for longer due to tough first-quarter inflation data.

Cleveland Fed President Loretta Mester and Boston Fed President Susan Collins both said Tuesday evening that they need more evidence of slowing inflation before cutting rates .

Some Fed officials willing to raise rates if needed: meeting minutes

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington on May 1. (AP Photo/Susan Walsh, File) (ASSOCIATED PRESS)

Collins said the Fed will have to be patient and that reducing inflation will take longer than it previously thought. Mester said she wants to see “a few more months” of data showing inflation falling before she cuts rates.

Separately, Fed Governor Chris Waller said Tuesday that he favors keeping interest rates steady for longer and needs several more months of good inflation data before cutting rates.

The comments come after Fed Chairman Jay Powell said last week that he believed the Fed would need more than a quarter of data to truly judge whether inflation was falling steadily toward 2%. Waller seems to want more, noting that he would like to see “several” months of data.

This implies that it will take more than three inflation reports for the Fed to feel confident about cutting rates from their 23-year high, putting the chances of a first rate cut in September at the earliest if the data supports such a decision.

Investors are pricing in a roughly 50% chance of a rate cut in September, with increasingly lower odds of a second rate cut thereafter.

Goldman Sachs CEO David Solomon said at an event Wednesday that he doesn’t expect the Fed to raise rates at all this year.

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