Fed ready to raise interest rates if inflation remains high, minutes show

Federal Reserve Officials last month expressed concern about higher-than-expected inflation and indicated they could raise interest rates if consumer prices continue to rise.

While Fed policymakers left interest rates at their lowest levels since March 2020, when COVID-19 forced an unprecedented shutdown of the country’s economy in November, Fed policymakers voted unanimously to begin phasing out interest rates. $120 billion in monthly Fed bond purchases with $15 billion in November and December. At that rate, the program would be completed by June next year.

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But minutes released Wednesday of the US central bank’s November 2-3 meeting show that some policymakers are concerned that inflationary pressures are worsening and hint that they are prepared to raise interest rates from near zero if the inflation rate is lower. prices continue to rise. While officials emphasized a “patient” approach to incoming economic data, they also said they “do not hesitate to take appropriate measures to address inflationary pressures that posed risks to the long-term objectives of price stability and employment.”

In this September 30, 2021 file photo, Federal Reserve Chairman Jerome Powell testifies at a House Financial Services Committee hearing on Capitol Hill in Washington. (Sarah Silbiger/Pool Photo via AP, File/Associated Press)

Several participants noted that the Committee should be willing to adjust the pace of asset purchases and raise the target range for the Federal Funds rate earlier than participants had currently anticipated if inflation were to remain above levels are in line with the Committee’s objectives”, the minutes stated. .

New data released Wednesday morning shows that consumer spending price indices — the inflation measure preferred by the Fed — rose 4.1% in October from the previous year, as the more volatile measurements of food and energy outside be considered, the fastest pace since January 1991.

Speaking to reporters after the two-day meeting of the FOMC concluded earlier this month, Chairman Jerome Powell declined to specify under what circumstances the Fed would accelerate its winding-down timeline or begin raising federal fund rates. However, the minutes noted that some participants felt that accelerating the cut could be justified in the event that the Fed needs to intervene to quell rising inflation.

Some participants suggested that cutting the pace of net asset purchases by more than $15 billion per month might be warranted so that the Committee would be in a better position to make adjustments to the target range for the federal funds rate. , especially in light of inflationary pressures,” the minutes said.

Powell has maintained that policymakers will complete the winding-down process, which is on track to complete at the current pace in June, before raising interest rates from near zero.

But traders are currently forecasting at least three rate hikes next year, likely after the release of the latest inflation data.

FILE PHOTO: Recruiters and job seekers seen at a job fair in Golden, Colorado, June 7, 2017. REUTERS/Rick Wilking

Powell — who was bugged by President Biden to lead the Fed for another four years — pledged Monday to use the Fed’s full arsenal to prevent faster inflation from becoming more permanent.

“We know that high inflation takes a toll on families, especially those who are less able to meet the increased costs of essentials such as food housing and transportation,” he said. “We will use our instruments to support the economy and the labor market and prevent higher inflation from becoming entrenched.”

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Still, Powell has maintained that the price spike was caused by “supply and demand imbalances, bottlenecks and a burst of inflation” caused by the “unprecedented reopening of the economy, along with the lingering effects of the pandemic”. He has previously said that as the economy opens up and supply chain disruptions disappear, the inflation surge will slow down.

Fed officials will release their latest economic projections at their next policy-making meeting, scheduled for Dec. 14-15.

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