Fed Briefing July 2022:

Federal Reserve officials at their July meeting said they were unlikely to consider pausing interest rate hikes until inflation had come down significantly, according to the minutes of the meeting. session published on Wednesday.

During a meeting in which the central bank approved a rate hike of 0.75 percentage points, policymakers expressed their determination to bring down inflation which is well above the level of 2% desired by the Fed.

They did not provide specific guidance for future increases and said they would closely monitor the data before making that decision. Market prices are for a half point rate hike at the September meeting, although that remains a close call.

Meeting participants noted that the 2.25% to 2.5% range for the federal funds rate was around the “neutral” level, which is neither supportive nor restrictive of activity. Some officials said a restrictive stance would likely be appropriate, pointing to more rate hikes to come.

“With inflation remaining well above the Committee’s target, participants felt that a shift to a restrictive policy was necessary to meet the Committee’s legislative mandate to promote maximum employment and price stability” , says the minutes.

The document also reflected the idea that once the Fed is comfortable with its policy stance and sees it having an impact on inflation, it could begin to ease off the political brake. This notion helped push stocks into a strong summer rally.

“Participants felt that as the monetary policy stance tightens further, it would likely become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on the ‘economic activity and inflation,’ the minutes read.

However, the summary also indicates that some participants said that “it would probably be appropriate to hold this level for some time to ensure that inflation is firmly on the way back to 2%.”

Stay sensitive to data

Officials noted that future pricing decisions would be based on incoming data. But they also said there were few signs of a slowdown in inflation, and the minutes repeatedly underscored the Fed’s determination to bring inflation down.

They further noted that it would “likely take some time” before the policy takes effect enough to have a significant impact.

The consumer price index was flat in July, but rose 8.5% from a year ago. A separate measure tracked by the Fed, the personal consumption expenditure price index, rose 1% in June and 6.8% year-over-year.

Policymakers feared that any sign of hesitation from the Fed would make the situation worse.

“Participants felt that a significant risk facing the Committee was that high inflation could take hold if the public began to question the Committee’s resolve to sufficiently adjust the policy stance,” the report said. minutes. “If this risk materializes, it would complicate the task of bringing inflation down to 2% and could significantly increase the economic costs of doing so.”

Although the Fed has taken unprecedented action by hiking by three-quarters of a point in successive meetings, markets have recently been in rally mode on hopes that the central bank may slow the pace of increases ahead of the month. ‘fall.

Since the recent low in mid-June, the Dow Jones Industrial Average is up more than 14%.

The minutes noted that some members were concerned the Fed was overdoing it with rate hikes, stressing the importance of not being tied to forward guidance on moves and instead following the data.

This is breaking news. Please check back here for updates.

Leave a Comment

Your email address will not be published.