Federal Reserve
On August 17, Eastern Time, the Federal Reserve released the minutes of its July meeting. The minutes of the meeting showed that when considering the appropriate stance of monetary policy, participants agreed that the labor market supply was very tight and inflation was well above the 2% inflation target of the Federal Reserve Open Market Committee (FOMC). Participants noted that recent spending and production indicators have softened, while job growth has been strong and the unemployment rate has remained low. Against this background, all participants agreed that a interest rate hike of 75 basis points in July was appropriate.
All participants agreed that the committee should continue to reduce its holdings of U.S. Treasury securities, agency debt and agency mortgage-backed securities , as described in the plan to reduce the size of the Fed's balance sheet released in May.
Participants said that after the July rate hike, the nominal federal funds rate will be within their expected long-term neutral range. Even so, with inflation high and expected to remain high in the short term, some participants emphasized that the actual federal funds rate after the July rate hike may still be below the short-term neutral level.
In discussing possible policy actions over the next several meetings, participants continued to expect that maintaining the target range for raising the federal funds rate would be beneficial to achieving the committee's goals. With inflation remaining well above the Committee's objective, participants argued that a restrictive policy stance would be needed to meet the Committee's twin objectives of full employment and price stability. The pace of interest rate increases and the extent of future monetary tightening will depend on what future information suggests about the economic outlook and its risks.
Participants judged that as the monetary policy stance further tightens, it may be appropriate to slow down the pace of interest rate hikes at some point in the future, and at the same time assess the impact of cumulative adjustments in policy on economic activity and inflation. Some participants said that once the policy rate reaches a sufficiently restrictive level, it may be appropriate to maintain it at that level for a period of time to ensure that inflation steadily returns to the 2% track.
Participants also believed that a significant risk now faced by the committee is that high inflation could become entrenched if the public begins to question the committee's determination to adjust its policy stance. If this risk materializes, it will complicate the task of returning inflation to 2% and may increase its economic costs. The minutes of the
meeting showed that participants reiterated their firm commitment to returning the inflation rate to the 2% target. Participants agreed that returning inflation to the 2% target is necessary to maintain a strong labor market.
Participants also pointed out that the path of inflation will be affected by various non-monetary factors, including the development of the Russia-Ukraine conflict and supply chain disruptions. As in the last minute, participants recognized that monetary tightening may slow the pace of economic growth, but they believed that getting inflation back to 2% was critical to the goal of sustained full employment.
Source: The Paper
Original title: Federal Reserve Meeting Minutes: It is necessary to continue to raise interest rates, and it is appropriate to slow down the rate hike at some point in the future
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