Fed Minutes: No Letting Up on Rate Hikes Until Inflation Contained
By Ethen Kim Lieser
“With inflation remaining well above the Committee’s objective, participants judged that moving to a restrictive stance of policy was required to meet the Committee’s legislative mandate to promote maximum employment and price stability,” the minutes stated.
Fed officials, though, left open the possibility of becoming less aggressive if their policy stance has a positive impact on inflation. The Bureau of Labor Statistics’ latest Consumer Price Index (CPI), prices that U.S. consumers pay for a variety of goods and services, reached 8.5 percent in July year-over-year, a decrease of 0.6 percentage point from the month prior.
“Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation,” the minutes continued.
The summary did, however, also acknowledge that some officials said that “it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent,” the long-run objective of the Fed.
The Fed meeting last month saw the central bank sign off on raising its key short-term rate by three-quarters of a percentage point for a second straight month. The unanimously approved rate increase put the federal funds rate, which directly impacts what banks charge each other for short-term loans, at a range of 2.25 percent to 2.5 percent, the highest level since December 2018.
CNBC noted that “market pricing is for a half-point rate hike at the September meeting, though that remains a close call.”
Earlier this month, Fed gov. Michelle Bowman expressed belief that she doesn’t expect inflationary pressures, which are sitting at roughly four-decade highs, to recede anytime soon and sees a need to keep pushing rates northward.
“My view is that similarly sized increases should be on the table until we see inflation declining in a consistent, meaningful, and lasting way,” she said in prepared remarks in Colorado for the Kansas Bankers Association, per Bloomberg.
She added that she sees “a significant risk of high inflation into next year for necessities, including food, housing, fuel, and vehicles.”
Meanwhile, former New York Fed president William Dudley contended on Monday that he believes the market is likely underestimating the future path of rate increases.
“The market is misunderstanding what the Fed is up to,” he told CNBC’s Squawk Box. “I think the Fed is going to be higher for longer than what market participants understand at this point.”
Ethen Kim Lieser is a Washington state-based Finance and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.