Fed Minutes Showed Policymakers Were Still Intent on Easing Inflation
Officials slowed their rate increases in February, and have signaled that they will continue to raise rates by a modest quarter point per meeting pace in coming meetings. Some policymakers — including Loretta Mester at the Federal Reserve Bank of Cleveland — have been clear in public that they would have preferred a bigger move at the latest meeting.
While the minutes acknowledged that “a few participants” would have supported or even preferred a half-point move, they said smaller adjustment were seen as a way to balance risks.
Almost all observed that slowing “would allow for appropriate risk management as the committee assessed the extent of further tightening needed to meet the committee’s goals,” the minutes said.
Now the question is just how high rates must rise, and how long they will stay there.
The challenge for central bankers is that several factors playing out in early 2023 suggest that the economy retains substantial strength. Americans are getting jobs and winning raises, shoring up household incomes. They are still sitting on savings piles amassed during the pandemic, though those are shrinking. Many older households have just received a cost-of-living increase of 8.7 percent in their first Social Security check of the year.
Even as of the Jan. 31-to-Feb. 1 meeting, officials saw several reasons that inflation might remain too high: China’s reopening from coronavirus lockdowns could add to demand, Russia’s war in Ukraine could cause supply disruptions, and the labor market might stay strong for longer than expected, according to the minutes.
Yet policymakers also saw reasons inflation might fade quickly. Among them, many global central banks have raised interest rates, and the United States could be vulnerable to tipping into an outright recession after a period of more subdued growth. Plus, the country could face financial or economic problems if Congress’s debate over raising the debt limit drags out.
“A number of participants stressed that a drawn-out period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the broader economy,” the minutes said.
Article source: https://www.nytimes.com/2023/02/22/business/economy/inflation-fed-minutes.html