Federal Open Market Committee Minutes
On February 1st The FOMC raised the benchmark rate 25bps. The FOMC minutes released today shows, during the meeting, the participants generally observed that the inflation outlook continued to pose upside risks and was a crucial factor in shaping the policy outlook. They believed that interest rates would need to increase and remain elevated “until inflation is clearly on a path to 2%.”
Only a few participants expressed outright support for a larger half-percentage-point increase at the meeting or indicated that they “could have supported” such an increase.
The Breakdown, what were they thinking?
The minutes indicated that the Fed was working towards a possible conclusion to its current rate increases, both by slowing down the pace to more cautiously approach a possible stopping point and by leaving open the possibility of how high rates could ultimately rise if inflation does not slow.
Throughout a year in which the inflation rate soared to a 40-year high. The Fed worked to catch up by raising its policy rate over eight meetings, starting from a near-zero level in March of the previous year to the current range of 4.50%-4.75%.
The policy statement released on Feb. 1 stated that “ongoing increases” would still be necessary, but the focus had shifted from the pace of future rate hikes to their “extent.” This change acknowledged the belief among policymakers that they may be approaching a rate that is sufficient to make further progress in reducing inflation.
Since the last meeting, the data has shown that the economy continues to grow, and jobs are being added at a faster rate than expected. However, progress towards the Fed’s 2% inflation target has been less consistent.
According to the minutes, Fed officials remain mindful of the possibility that they may need to take further action to combat inflation, indicating a hawkish stance that may become more evident when policymakers release new interest rate and economic projections at a meeting in four weeks.
The minutes stated that “participants agreed” that the Federal Open Market Committee (FOMC) had made significant progress in moving towards a sufficiently restrictive stance of monetary policy over the past year, and that the economy continued to grow in spite of a tight labor market.
Nevertheless, the minutes also noted that while there were signs that the cumulative impact of the FOMC’s tightening of monetary policy was starting to ease inflationary pressures. Inflation still remained well above the Committee’s longer-term goal of 2%, and the labor market continued to be very tight.
Read the full text here.
FOMC Minutes January 31–February 1, 2023 (federalreserve.gov)
