Federal Reserve officials announced earlier this month that they will raise interest rates again if inflation shows no signs of slowing further, according to the latest Federal Open Market Committee (FOMC) minutes released Wednesday. He said he was ready.
“Several participants noted they were prepared to tighten policy further if inflation risks materialized and such action became appropriate,” the minutes said.
The minutes also noted that several participants believed household and business spending may need to decline for inflation to sustainably reach the Fed’s 2% goal. emphasized.
At its April-May meeting, the Fed decided to keep its benchmark interest rate in the range of 5.25% to 5.5%, where it has remained since July last year.
During the talks, Fed officials expressed concern about “disappointing” inflation data, noting that recent numbers suggest inflation could continue in the coming months. They confirmed that inflation has increased significantly in both the goods and services sectors.
“In particular, the inflation rate for core services excluding housing increased in the first quarter compared to the fourth quarter of last year, and prices of core goods recorded their first increase in three months, the first time in several months,” the minutes stated. has been done.
The personal consumption expenditure price index, the Fed’s preferred measure of inflation, rose at an annual rate of 3.4% in the first three months of the year, up from a 1.7% pace in the previous quarter. This was the highest inflation rate since the first quarter of 2023.
These high inflation numbers caused many officials to worry that the Fed’s current benchmark interest rate was not enough to control inflation, according to minutes of the meeting.
“Monetary policy is seen as tightening, but many participants commented that there was uncertainty about the extent of tightening,” the minutes said.
Some officials have expressed concern that the impact of high interest rates may be less than in the past, or that so-called “neutral” rates may be higher than previously thought. There is also speculation that the level of potential economic growth may be lower than expected, suggesting that even if economic growth returns to its long-term trend, the economy could still experience further inflation. ing.
Fed officials are also concerned that the disinflation in commodity prices that has helped bring down overall inflation may be over.
“Several participants commented that for inflation to move sustainably toward the Committee’s goals, aggregate demand growth would need to slow from the strong pace of recent quarters,” the minutes said. reported.
Officials emphasized that housing costs have not fallen as much as expected and labor costs have not eased as much as expected. These two factors are major contributors to current inflation in the United States.
Some officials have suggested that steady growth in the U.S. economy could sustain consumer demand for goods and services, which could keep prices elevated.
Many Federal Reserve officials worry that high immigration rates could push up aggregate demand and keep inflation high. Conversely, some observers have commented that high immigration rates may support economic activity by increasing the supply of labor.
At the meeting, officials agreed that it will take longer than previously expected to be confident that inflation will move toward the 2% target. Since the meeting, Fed officials have emphasized the importance of patience and maintaining stable interest rates over longer periods of time to ensure inflation trends continue toward their goals.
The memo appears to reveal that the Fed is much more hawkish than its last meeting in March. At the last meeting, officials seemed confident that policy rates would likely peak in this tightening cycle, and expected a shift to a more accommodative stance as the economy developed. As I expected.
Since the May meeting, many investors and analysts have viewed the release of April’s CPI data as a relief following the strength of inflation in the first quarter.
The Fed will release a summary of its closed-door FOMC meeting three weeks after it concludes.
