Fed officials see ‘upside risks’ to inflation possibly leading to more rate hikes, minutes show
Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary in the future unless conditions change, minutes released Wednesday from the session indicated.
That discussion during a two-day July meeting resulted in a quarter percentage point rate hike that markets generally expect to be the last one of this cycle.
However, discussions showed that most members worry that the inflation fight is far from over and could require additional tightening action from the rate-setting Federal Open Market Committee.
That discussion during a two-day July meeting resulted in a quarter percentage point rate hike that markets generally expect to be the last one of this cycle.
However, discussions showed that most members worry that the inflation fight is far from over and could require additional tightening action from the rate-setting Federal Open Market Committee.
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.
That latest increase brought the Fed’s key borrowing level, known as the federal funds rate, to a range targeted between 5.25%-5%, the highest level in more than 22 years.
While some members have said since the meeting that they think the further rate hikes could be unnecessary, the minutes suggested caution. Officials noted pressure from a number of variables and stressed that future decisions will be based on incoming data.
“In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time,” the document said.
That latest increase brought the Fed’s key borrowing level, known as the federal funds rate, to a range targeted between 5.25%-5%, the highest level in more than 22 years.
While some members have said since the meeting that they think the further rate hikes could be unnecessary, the minutes suggested caution. Officials noted pressure from a number of variables and stressed that future decisions will be based on incoming data.
“In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time,” the document said.
Lots of uncertainty
Indeed, the minutes suggested considerable misgivings over the future direction of policy.
While there was agreement that inflation is “unacceptably high,” there also was indication “that a number of tentative signs that inflation pressures could be abating.”
“Almost all” the meeting participants, which includes nonvoting members, were in favor of the rate increase. However, those opposed said they thought the committee could skip a hike and watch how previous increases are impacting economic conditions.
Indeed, the minutes suggested considerable misgivings over the future direction of policy.
While there was agreement that inflation is “unacceptably high,” there also was indication “that a number of tentative signs that inflation pressures could be abating.”
“Almost all” the meeting participants, which includes nonvoting members, were in favor of the rate increase. However, those opposed said they thought the committee could skip a hike and watch how previous increases are impacting economic conditions.
Real estate concern
But there was concern over problems with commercial real estate.
Specifically, officials cited “risks associated with a potential sharp decline in CRE valuations that could adversely affect some banks and other financial institutions, such as insurance companies, that are heavily exposed to CRE. Several participants noted the susceptibility of some nonbank financial institutions” such as money market funds and the like.
For the future of policy, members emphasized two-sided risks of loosening policy too quickly and risking higher inflation against tightening too much and sending the economy into contraction.
Recent data shows that while inflation is still a good distance from the central bank’s 2% target, it has made marked progress since peaking above 9% in June 2022. $SPDR S&P 500 ETF (SPY.US)$ $Invesco QQQ Trust (QQQ.US)$ $Nasdaq Composite Index (.IXIC.US)$ $ProShares UltraPro Short QQQ ETF (SQQQ.US)$ $Dow Jones Industrial Average (.DJI.US)$ $S&P 500 Index (.SPX.US)$
Specifically, officials cited “risks associated with a potential sharp decline in CRE valuations that could adversely affect some banks and other financial institutions, such as insurance companies, that are heavily exposed to CRE. Several participants noted the susceptibility of some nonbank financial institutions” such as money market funds and the like.
For the future of policy, members emphasized two-sided risks of loosening policy too quickly and risking higher inflation against tightening too much and sending the economy into contraction.
Recent data shows that while inflation is still a good distance from the central bank’s 2% target, it has made marked progress since peaking above 9% in June 2022. $SPDR S&P 500 ETF (SPY.US)$ $Invesco QQQ Trust (QQQ.US)$ $Nasdaq Composite Index (.IXIC.US)$ $ProShares UltraPro Short QQQ ETF (SQQQ.US)$ $Dow Jones Industrial Average (.DJI.US)$ $S&P 500 Index (.SPX.US)$
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