According to the minutes from the central bank's September meeting, Federal Reserve officials were surprised at the pace of inflation and indicated at their last meeting that they expect interest rates to stay in place until prices come down. Policymakers noted that inflation is taking its toll on lower-income Americans in discussions leading up to the rate hike. Rate hikes are likely to continue until the problem is solved, they said. The committee needed to move to a more restrictive stance in order to meet the legislative mandate to promote maximum employment and price stability, according to the meeting summary. With inflation showing little sign of abating, officials raised their assessment of the path of the federal funds rate that would likely be needed to achieve the committee's goals.
After the release of the minutes, some traders took one comment as a signal that the Fed could back off its rapid tightening if there was more turbulence in the financial markets.
It would be important to calibrate the pace of further policy tightening in order to mitigate the risk of significant adverse effects on the economic outlook, according to the minutes. A recent flow of data shows that inflation pressures are not as high as they were earlier this year. The Fed's preferred inflation gauge, which excludes food and energy, rose 4.9% in August, well above the central bank's 2% target. The producer prices rose in September. The minutes said that participants observed that inflation remained unacceptably high and well above the Committee's longer-run goal. According to participants, recent inflation data generally came in above expectations and that inflation was declining more slowly than they had previously anticipated. The members of the Federal Open Market Committee said at the meeting that the economy needs to slow down. They lowered their projections for the economy, expecting GDP to grow at just a small pace in the next two years, well below trend and the strongest gains since 1984
They said that inflation was caused by supply chain problems that were not limited to goods but also stressed to a shortage of labor. Officials are optimistic that policy will help loosen the labor market and bring down prices. According to officials, they don't expect rates to stay high until inflation goes down to 2%. The participants thought that inflation pressures would gradually diminish. The meeting ended with a 0.75 percentage point increase in the benchmark rates. The next meeting is expected to approve a similar-sized increase. When the pace of rate hikes at least will decelerate, officials noted, they did not give a time frame on when that would happen. It would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments, according to the minutes. After the fed funds rate had reached a sufficiently restrictive level, it would be appropriate to maintain that level for some time until there was compelling evidence that inflation was on course to return to the 2 percent objective. According to the summary of economic projections, the end point of rate increases would be 4.6%. The Fed is expected to keep rates at their current level through the year.
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