Fed Minutes May Point to Rate Hike Endgame, New Debate Phase

Fed Minutes May Point to Rate Hike Endgame, New Debate Phase
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WASHINGTON, Jan 4 (Reuters) – The Federal Reserve closed out 2022 with a firm pledge at its December policy meeting that interest rates would continue to rise this year, but at a slower pace and perhaps only another three-quarters of a point. percentage.

The reading from that session, which will be published Wednesday at 2 p.m. economic growth in the face of his main concern about inflation.

New data released Wednesday gave little indication that the US job market is beginning to slow in the way Fed officials hope it will allow inflation to subside without major job loss. The number of job offers Little changed in November and held high relative to the number of job seekers, a data point that Fed Chairman Jerome Powell has emphasized as a sign of continued rapid wage increases that could fuel future inflation. .

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The Labor Department’s December jobs report will be released on Friday, with the latest consumer inflation data coming next week, both important benchmarks as the Fed charts its next policy move.

The overall tone of the upcoming minutes is likely to show that inflation continued to be the main bill among policymakers in their December 1 report. 13-14 meeting. The pace of price increases has been slowing for several months, but as of November, the Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index, was still rising at an annual rate of 5.5%. , more than double the Fed’s 2% target.

In an essay published Wednesday, Minneapolis Fed President Neel Kashkari said he felt interest rates would have to go up a bit more than most of his colleagues anticipate, and go even higher if inflation doesn’t. it slows down as expected.

“It will be appropriate to continue raising rates at least in the next few meetings until we are confident that inflation has peaked,” wrote Kashkari, who said he sees a possible stopping point for the fed funds rate at around 5 .4% this year, versus the median of 5.1% projected for 2023 by the 19 Fed staff. “Any sign of slow progress that keeps inflation elevated for longer will ensure, in my view, that the rate of monetary policy is potentially raised much more”.

At the December meeting, the Fed raised the target federal funds rate by half a percentage point to a range between 4.25% and 4.50%.


If there was rough unanimity about next year, projections for 2024 diverge dramatically, with one Fed official seeing the policy rate stay at 5.625%, another seeing it cut to 3.125%, and no more than seven officials. they agree on any particular point. rate in an economy that may still be flirting with a recession or muddled through.

With their descriptions of different views and the approximate sizes of the groups of policymakers offering them, the minutes could show that the Fed’s internal deliberations are entering a new phase in which risks to economic growth and the employment become more important and a wider range of opinions are expressed. on the necessary compensation to continue lowering inflation.

The Fed “seems united on getting policy above 5%, but pretty split on exit strategy; how long to hold and how deeply and quickly to ease on the other side,” Derek Tang wrote Tuesday, LH Meyer economist.

The minutes could also help pinpoint how much sentiment there is to ease the pace of upcoming rate hikes to a quarter of a percentage point starting January 1. 31-Feb. 1, a way to balance out the competitive risks the Fed may face this year if inflation continues to decline and the economy continues to slow.

The Fed used three-quarter percentage point hikes for much of 2022, but cut them to a minimum. half percentage point increase in December and indicated that it may slow the pace down further.

Although Fed Chairman Jerome Powell in December was adamant that the central bank will do whatever it takes to rein in inflation, he also said that officials are aware of the risks of overreacting, something that Fed staff has also begun to emphasize.

In the November minutes. At meeting 1-2, Fed staff put roughly the same odds of a recession in 2023, and new research late last month warned that with the world’s major central banks raising rates simultaneously, the combined impact may be larger than anticipated since politics in a country influences bond yields. , currency values ​​and trading patterns in another.

“It is especially difficult to estimate contagion effects, and there are concerns that policymakers may underestimate them. In such a case, there is a risk of overtightening that central banks need to be aware of, and we think they are,” economists of the Fed Dario Caldara. , Francesco Ferrante, and Albert Queralto wrote.

Reporting by Howard Schneider; Edited by Dan Burns and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

howard schneider

Thomson Reuters

Covering the US Federal Reserve, monetary policy and economics, a graduate of the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, economics reporter and on the local staff of the Washington Post.

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