WASHINGTON – Politicians of the Federal Reserve concluded last month that they will accelerate the tightening of lending if inflation fails to slow down in the coming months.
Most officials agreed that a faster rise in interest rates would be needed “if inflation does not decrease,” as expected by the Fed’s policy committee. to the minutes of a central bank meeting in late January on political issueswhich were released on Wednesday.
The minutes underscore the urgency that the Fed, led by Chairman Jerome Powell, is feeling to contain the sharp surge in inflation that has lasted longer and spread to more industries than politicians expected. Back in December, the Fed predicted that inflation, based on their preferences, would fall to an annual rate of 2.6%. Now it is 5.8%.
Most analysts expect Fed officials to raise that forecast at their next meeting in mid-March to reflect the acceleration in consumer prices. Inflation has peaked in four decades, shattering household budgets and destroying wage growth benefits.
Fed officials are expected to raise their base short-term rate several times this year, starting in March. But economists are increasingly suggesting that the Fed has waited too long to unleash its tools to fight inflation.
“The Fed is behind the curve,” said James Orlando, senior economist at TD Economics. “It should catch up, which will hopefully cool some of the inflation foam.”
On a a press conference after their January 26 meeting, Powell said Fed officials would be “humble” and “smart” in their betting decisions. He also said then that politicians “choose to raise the rate of federal funds at the March meeting, believing that the conditions will be appropriate.”
A number of Fed officials recently admitted that inflation turned out to be worse than they expected. And the minutes of the January meeting noted that officials “noted that recent inflation continued to far exceed the long-term target (Fed), and high inflation persisted longer than they expected.”
Minutes also underscore what Powell did at his news conference last month: with stable economic growth and unemployment at just 4%, this time the Fed could raise rates at a much faster rate than in 2015-2018. , if annually carried out no more than four hikes.
According to futures markets, investors expect seven-quarter rate increases this year compared to four months ago.
Fed officials sent conflicting signals since last week the government released an inflation report that showed prices rising faster than expected.
James Bullard, president of the Federal Reserve Bank of St. Louis, said Monday that he was in favor of raising the Fed’s base rate by a full percentage for the next three meetings. In this scenario, one of these rate increases will be half.
Other Fed officials supported more gradual steps. One of them, Neil Kashkari, head of the Fed of Minneapolis, on Wednesday outlined a restrained approach to raising rates. Kashkari predicted that inflation would partially subside on its own over the next year as supply chains opened up and long-term trends, such as an aging society, held back spending.
“I warned my colleagues and myself: let’s not overdo it,” Kashkari said during an online question and answer session with United Natural Foods staff. “If we raise rates really aggressively, we risk slowing down the economy by putting the economy in recession.”
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