While acknowledging that inflation is showing signs of improvement, members of the Federal Reserve believe that continued interest rate increases are needed this year.
The Fed hiked interest rates by 25 basis points at its late January meeting, but “some participants in favor of a 50 basis point hike felt that a larger hike would push the target range into a sufficiently restrictive stance. “We are taking into account their views on the risks to achieving price stability in a timely manner,” the minutes said.
The minutes revealed continuing concerns about inflation and the strength of the labor market, but no real change in the narrative around the Fed’s actions.
Inflation is rising at a pace “well above” the Fed’s average annual target of 2%, and the labor market is “extremely tight, with continued upward pressure on wages and prices,” the minutes said. Stated.
The Fed is widely expected to raise rates by another 25 basis points at next month’s meeting, but St. Louis Fed President James Bullard told CNBC Wednesday that he supports a 0.5 percentage point hike. rice field.
Political comics about the economy
Bullard and Cleveland Fed President Loretta Mester said they called for a 50 basis point rate hike at their January meeting. Since then, economic data have been a little better than expected, with inflation measures showing monthly increases despite lower annual inflation.
There are concerns among some and market players that while the Fed can keep inflation in check, there is also the risk that the Fed will reignite if the economy and labor market continue to show resilience. Commodity prices have fallen and the housing market has contracted due to rising mortgage rates, but the service sector of the economy is still showing signs of growth and rising wages.
Fed Chairman Jerome Powell has sometimes hinted that the process of disinflation has begun, while arguing that the central bank’s job of lowering inflation to its annual target of 2% is not yet done. The idea arose that while the Fed would eventually settle for higher inflation in the short term, it might keep interest rates at higher levels in the longer term.
“Overall, the Fed has become very hawkish,” said Jean Goldman, chief investment officer at Cetera Financial, ahead of the release of the minutes. “They’re still hawkish and focused on fighting inflation, but they’re pretty clumsy in getting their message across.”
It has long been noted that monetary policy adjustments come with a ‘lag effect’, but the trillions of dollars of fiscal and monetary stimulus Washington has approved in 2020 and 2021 to combat the impact of coronavirus will still bring some benefits to consumers in 2023.
Economic analysts Kayla Brune and Sophia Bragg wrote that “expenditure growth was widespread.” “Not only did the services category continue to benefit from the reallocation of consumer budgets to these categories after the pandemic, but the goods category also registered an increase in purchases.”
Uncertainty is not unique to the US economy. Economists, who have been told for months that a Russian invasion of Ukraine and energy supply disruptions will plunge the eurozone economy into recession, believe Europe will emerge from recession at least this year.
A warmer climate has helped soften the impact of the suspension of gas exports from Russia, but economic growth in the region has surprised upwards.
European Central Bank President Christine Lagarde said last month: “In recent weeks, the news has become more positive.