Federal Reserve officials acknowledged at their most recent meeting in January that there had been “significant progress” in reducing U.S. inflation. But some of the policymakers expressed concern that strong growth in spending and hiring could disrupt that progress.
Quick Read
- Federal Reserve officials noted “significant progress” in reducing U.S. inflation at their January meeting but expressed concerns over strong spending and hiring potentially disrupting this progress.
- Most officials were wary of cutting the benchmark interest rate prematurely, fearing it might hinder the sustainable return to the 2% inflation target.
- Concerns were also raised about the possibility of stalled progress towards price stability due to increased aggregate demand or supply chain issues.
- Global disruptions, such as Red Sea shipping challenges due to Middle East conflicts, were identified as potential factors that could influence inflation.
- The Fed maintained its key rate at approximately 5.4%, the highest in 22 years, emphasizing the need for more confidence in inflation control before considering rate cuts.
- Chair Jerome Powell indicated that the Fed was unlikely to reduce rates in March, aligning with the cautious stance on premature rate cuts.
- The Fed’s rate hikes since March 2022 were aimed at combating high inflation rates, which have since shown a decline from a peak of 9.1% in June 2022 to 3.1% in January.
- Fed officials remain optimistic about the continuing slowdown in inflation, with some expecting rate reductions to begin around May or June.
- The Fed’s potential rate cuts could become a focal point in the presidential race, with Trump criticizing Powell for decisions that could advantage the Democrats.
- Recent data suggests that achieving the Fed’s inflation target may take longer than anticipated, with some Fed officials emphasizing the importance of future economic reports in determining the Fed’s next steps.
The Associated Press has the story:
Fed’s minutes: Officials worried that progress on inflation could stall in coming months
Newslooks- WASHINGTON (AP) —
Federal Reserve officials acknowledged at their most recent meeting in January that there had been “significant progress” in reducing U.S. inflation. But some of the policymakers expressed concern that strong growth in spending and hiring could disrupt that progress.
In minutes from the Jan. 30-31 meeting released Wednesday, most Fed officials also said they were worried about moving too fast to cut their benchmark interest rate before it was clear that inflation was sustainably returning to their 2% target. Only “a couple” were worried about the opposite risk — that the Fed might keep rates too high for too long and cause the economy to significantly weaken or even slip into a recession.
Some officials “noted the risk that progress toward price stability could stall, particularly if aggregate demand strengthened” or that the progress in improving supply chains could falter.
Officials also cited the disruptions in Red Sea shipping, stemming from the conflict in the Middle East, as a trend that could accelerate prices.
The sentiments expressed in Wednesday’s minutes help explain the Fed’s decision last month to signal that its policymakers would need more confidence that inflation was in check before cutting their key rate. At the January meeting, the Fed decided to keep its key rate unchanged at about 5.4%, the highest level in 22 years, after 11 rate hikes beginning in March 2022.
At a news conference after the meeting, Chair Jerome Powell disappointed Wall Street by indicating that the Fed was not inclined to cut rates at its next meeting in March, as some investors and economists had hoped. Rate cuts by the Fed typically lower a wide range of borrowing costs, including for homes, cars and credit card purchases, as well as for business loans.
The Fed’s aggressive streak of rate hikes was intended to defeat spiking inflation. Consumer prices jumped 9.1% in June 2022 from a year earlier — a four-decade high — before falling to 3.1% in January.
Several Fed officials have said in recent speeches that they were optimistic that inflation would continue to slow. In December, the officials projected that they would cut their rate three times this year, though they have said little about when such cuts could begin. Most economists expect the first reduction in May or June.
A shift toward rate cuts could put the Fed under scrutiny in this year’s presidential race, with the likely Republican nominee, Donald Trump, declaring that if he won the election, he wouldn’t reappoint Powell when his term as chair expires in 2026. Trump has called Powell “political” for considering rate cuts that Trump said could benefit President Joe Biden and other Democrats. Powell was first nominated to be Fed chair by Trump in 2017.
Since January’s meeting, there have been signs that inflation may take longer to return sustainably to the Fed’s target than many economists had expected. A gauge of consumer prices that excludes volatile food and energy costs rose much more than expected in January. And a measure of wholesale prices also picked up in January after several months of nearly flat or declining readings.
Some Fed officials who have spoken since those reports were released have reiterated their view that inflation is still steadily declining. But they have added that upcoming economic reports will be critical in determining the Fed’s next moves.
