After several periods of unexpectedly high inflation, Federal Reserve officials said at a meeting earlier this month that inflation was high enough to justify cutting key interest rates, currently at 23-year highs. concluded that it would take longer than previously thought for things to settle down.
Officials also discussed whether policy rates were having a sufficient impact on the economy to further tame inflation, according to minutes of the May 1 meeting released Wednesday.
According to the minutes, many officials noted it was unclear how restrictive the Fed’s interest rate policy would be.
This suggests that policymakers were not clear about whether they were doing enough to curb price increases.
The minutes of the meeting note that the “impact of high interest rates may be smaller than in the past.”
Economists note, for example, that many U.S. homeowners refinanced their mortgages during the pandemic, locking in very low mortgage rates.
Most large companies are also refinancing their debt at lower interest rates, blunting the impact of the Fed’s 11 interest rate hikes in 2022 and 2023.
These concerns have fueled speculation that the Fed may consider raising, rather than lowering, its benchmark interest rate in the coming months.
Indeed, the minutes note that “various” officials “expressed a willingness” to raise rates if inflation accelerated.
But in a press conference shortly after the meeting, Chairman Jerome Powell said it was “unlikely” the Fed would resume raising interest rates, a comment that sent financial markets briefly higher.
In a statement After their May 1 meeting, Fed officials acknowledged that progress in curbing domestic inflation stalled in the first three months of the year.
As a result, he said it would not start cutting its key interest rate until it had “greater confidence” that inflation was returning steadily to its 2 percent target.
The Fed’s rate cuts will ultimately make mortgages, auto loans and other forms of borrowing cheaper for consumers and businesses.
Powell also said he still expects inflation to fall further this year.
But, he added, “the data we’ve seen makes me less confident in it than I used to be.”
Inflation, as measured by the Fed’s preferred metric, has slowed steadily through most of 2023 from a peak of 7.1% in 2022.
But over the past three months, the measure has been moving faster than would be consistent with the central bank’s inflation target.
Federal Reserve data showed that inflation, excluding volatile food and energy prices, rose at an annualized rate of 4.4% in the first three months of the year, well above December’s 1.6% rate.
The acceleration has dampened hopes that the Fed will soon cut interest rates to achieve a “soft landing” that would reduce inflation to 2% and avoid a recession.
But a separate inflation report released by the government last week showed price pressures slowed slightly in April.
A series of Fed speakers this week welcomed the easing in April’s inflation report but stressed that more similar readings were needed before a rate cut was possible.
“We need to see a few more months of good inflation data” before supporting a rate cut, Christopher Waller, a ranking member of the Fed’s board of governors, said Tuesday.
This suggests the Fed is unlikely to consider cutting interest rates until September at the earliest.
