WASHINGTON, Feb 22 (Portal) – Minutes of the Federal Reserve’s latest monetary policy meeting are expected on Wednesday to detail the breadth of the debate at the US Federal Reserve over how much more interest rates may need to rise to slow inflation and a Cooling of the economy has remained stronger than expected despite monetary tightening.
Jan 31-Feb 1 session ended with the Fed raising its benchmark federal funds rate by a quarter of a percentage point, a return to a more standard rate hike size after a year of sequential hikes of 75 basis points and a half percentage point.
In a news conference after the end of that meeting, Fed Chair Jerome Powell said a return to smaller rate hikes would allow for a more gradual search for a potential breakpoint, and officials spent the meeting “talking quite a bit about the way forward.” as the central bank nears the end of its walking cycle.
But that meeting also came ahead of the release of key data showing unusually strong job growth in January and a slower-than-expected slowdown in inflation – a trend likely to reverse this week with the release of a report on how the Fed favors inflation , will continue on Friday index issued in January.
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The central bank uses the personal consumption expenditure price index to set its inflation target of 2%. Economists polled by Portal estimate that PCE excluding the more volatile food and energy components rose 4.3% on an annualized basis last month, a slight improvement from December’s jump of 4.4%. But on a monthly basis, this core inflation gauge is actually likely to have risen to 0.4% from 0.3% in the previous period.
“The news has just been that the US economy is stronger than we previously thought… Our risk right now is that inflation won’t come down or will pick up again,” requiring higher-than-expected rate hikes, President of St. Louis Fed James Bullard told CNBC on Wednesday.
Bullard has not yet upgraded his own rate outlook on the latest data and still believes a policy rate in the 5.25% to 5.50% range will be adequate to ease inflation this year.
However, investors have reacted to the recent data by boosting their own sense of where the Fed could end up.
Most don’t see the Fed returning to bigger half-a-point hikes, but they do see the central bank moving rates higher than previously expected and also keeping them elevated for longer — a shift in sentiment supported by Fed officials Probably welcomed is concern that market prices had underestimated their determination to bring inflation back to the 2% target.
TWO-WAY DEBATE
The minutes, due to be released at 2:00 p.m. EST (1900 GMT), could show how inclined the central bank remains on hawkish policy, particularly at what turned out to be the last meeting for former Fed Vice Chair Lael Brainard . She was among the Fed officials most sensitive to the risks facing the economy under tight monetary policy and most detailed in outlining reasons why inflation could slow faster than expected.
Brainard, who left the Fed to head President Joe Biden’s National Economic Council, anchored the more dovish side of a discussion between those who advise caution about further rate hikes because the economy may not yet fully adapt to what the Fed says has adjusted, and those who do believe that firms and households are proving so resilient that they may need the restraint of even higher interest rates for inflation to come down fully.
While last year there was little disagreement over what the Fed needed to do as inflation soared to a 40-year high, the central bank is now locked in a two-way debate “to find out what the resilience of the economy has been so far.” reflects time lags in monetary tightening versus a higher near-term neutral interest rate needed to lure firms and households to rein in spending, analysts at ISI Evercore wrote in analysis ahead of the minutes’ release.
While the minutes of the last monetary policy meeting are particularly outdated given the jobs and inflation data released since then, policymakers will update their views with new economic and interest rate forecasts coming out after the close of the Fed’s March 21-22 meeting. to be published in March.
Reporting by Howard Schneider; Additional reporting by Lindsay Dunsmuir; Adaptation by Dan Burns and Paul Simao
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Howard Schneider