Fed Minutes Show Agreement on Prolonged Higher Interest Rates

Fed Minutes Show Agreement on Prolonged Higher Interest Rates

Fed Minutes Show Agreement on Prolonged Higher Interest Rates:
Federal Reserve officials agreed earlier this month to keep interest rates higher for longer,
Many question whether monetary policy was tight enough to bring inflation down to its target.

 

 Contents
Federal Open Market Committee Meeting
 Interest Rates
Monetary Policy

 

 

 

Federal Open Market Committee Meeting

The minutes of the two-day Federal Open Market Committee (FOMC) meeting,
which concluded on May 1,
revealed that while participants believed monetary policy was “well positioned,”
several officials expressed a desire to tighten it further if necessary.

“Participants noted disappointing inflation readings during the first quarter,”

according to the minutes released Wednesday in Washington.
The minutes indicated,
“It will take longer than previously expected to gain greater
confidence that inflation is moving sustainably towards 2%.”

 

Interest Rates

Keeping interest rates higher for a longer period:
The minutes also stated that officials discussed maintaining interest rates
At their current levels, for a longer time
“if inflation does not show signs of moving sustainably towards 2%,
or reducing monetary policy restrictions if there is an unexpected weakening in labor market conditions.”

Following the rise in inflation in the first quarter,
Federal Reserve officials said they would keep interest rates
at their highest level in 23 years for longer than initially anticipated.

Federal Reserve Chair Jerome Powell stated in his May 1
Press conference that lowering borrowing costs would not be appropriate
until the central bank has greater confidence that inflation is moving sustainably towards its 2% target.

He reiterated at an event in Amsterdam on May 14,
“We will need to be patient and allow restrictive policy to do its work.”

Is Monetary Policy Restrictive Enough?

Although officials generally considered monetary policy restrictive,
policymakers noted that higher interest rates might have
less impact than in the past, and the neutral long-term rate could be higher than previously thought.

The minutes noted, “Many participants commented on their uncertainty
regarding the extent of the policy’s restrictiveness.”

Since the Federal Reserve meeting,
April’s consumer price data showed a modest inflation slowdown
after three months of higher-than-expected figures.
While price growth remains above the Federal Reserve’s target,
recent figures have alleviated some concerns about a resurgence in inflation.

The economy continues to grow at a robust pace,
although recent reports on retail sales and manufacturing indicate a decline in demand.
The labor market remains resilient but also shows signs of slowing down.
Job growth in April was the slowest in six months.

 

Fed Minutes Show Agreement on Prolonged Higher Interest Rates