Fed Prepared to Raise Interest Rates if Inflation Runs Too Hot, Minutes Show

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  • Fed­er­al Reserve FOMC meet­ing min­utes reveal offi­cials have con­cern over inflation 
  • Some offi­cials believe taper­ing should be hap­pen­ing at a faster pace

Fed­er­al Reserve offi­cials are con­cerned about ris­ing infla­tion and will be rais­ing inter­est rates if prices increase too much, accord­ing to min­utes from the Novem­ber 2–3 Fed­er­al Open Mar­ket Com­mit­tee meeting. 

“Var­i­ous par­tic­i­pants not­ed that the com­mit­tee should be pre­pared to adjust the pace of asset pur­chas­es and raise the tar­get range for the fed­er­al funds rate soon­er than par­tic­i­pants cur­rent­ly antic­i­pat­ed if infla­tion con­tin­ued to run high­er than lev­els con­sis­tent with the committee’s objec­tives,” the min­utes released Wednes­day read.

The min­utes reveal offi­cials’ grow­ing con­cern over the rate of infla­tion. Total per­son­al con­sump­tion expen­di­tures (PCE) price infla­tion was 4.4% over the 12 months end­ing in Sep­tem­ber, and core PCE price infla­tion, which excludes changes in con­sumer ener­gy prices and many con­sumer food prices, was 3.6% over the same peri­od, the min­utes note. 

Offi­cials said the high­er num­bers, while con­cern­ing, should not last too long, the min­utes revealed. The com­mit­tee raised its “near-term” infla­tion out­look but remains hope­ful that prices will lev­el in the long term. 

“Some par­tic­i­pants high­light­ed the fact that price increas­es had become more wide­spread,” the min­utes said. 

“Although par­tic­i­pants expect­ed sig­nif­i­cant infla­tion pres­sures to last for longer than they pre­vi­ous­ly expect­ed, they gen­er­al­ly con­tin­ued to antic­i­pate that the infla­tion rate would dimin­ish sig­nif­i­cant­ly dur­ing 2022 as sup­ply and demand imbal­ances abat­ed.” 

Even so, offi­cials will “not hes­i­tate to take appro­pri­ate actions to address infla­tion pres­sures that posed risks to its longer-run price sta­bil­i­ty and employ­ment objec­tives,” accord­ing to the minutes. 

Fol­low­ing its two-day meet­ing that end­ed on Novem­ber 3, the cen­tral bank announced that it would begin scal­ing back its pan­dem­ic aid this month. The Fed is cur­rent­ly pur­chas­ing $120 bil­lion in assets per month but will begin reduc­ing its pur­chas­es of Trea­suries by $10 bil­lion and ini­ti­ate a $5 bil­lion reduc­tion in mort­gage-backed securities. 

The com­mit­tee decid­ed to begin taper­ing in this way “in light of the sub­stan­tial fur­ther progress the econ­o­my has made toward the Committee’s goals since last Decem­ber,” it said in a Nov. 3 statement.

The min­utes also reveal that some Fed offi­cials believed that taper­ing should hap­pen at a quick­er pace than the agreed $15 bil­lion per month.


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  • Casey Wag­n­er

    Block­works

    Reporter

    Casey Wag­n­er is a New York-based busi­ness jour­nal­ist cov­er­ing dig­i­tal assets and macro eco­nom­ics. Pri­or to join­ing Block­works, she report­ed on mar­kets at Bloomberg News. She grad­u­at­ed from the Uni­ver­si­ty of Vir­ginia with a degree in Media Studies.

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