Senior Federal Reserve officials noted at their last meeting that there are signs that inflation is falling, but not enough to prevent further interest rate hikes, as minutes just published in the US showed.
While the Jan. 31-Feb. 1 meeting ended with a smaller rate hike than has been made since the start of 2022 — about 0.25 percent — officials stressed that their concern about inflation remains high. Inflation “remains well above the Fed’s 2% target,” the minutes said. The labor markets also “remained very tight, contributing to continued upward pressure on wages and prices.”
The aforementioned 0.25% increase by the Fed was the smallest increase since March 2022, and brought the federal interest rate to a target range of 4.5%-4.75%. But the protocol noted that the reduced rate comes with a high level of concern that inflation is still a threat. “The participants noted that the inflation data received in the last three months showed a welcome decrease in the rate of monthly price increases, but emphasized that more and more evidence will be required to be sure that inflation is on a path of continuous decline,” the minutes read.
The summary reiterated that Fed members believe that “sustained” interest rate hikes will be necessary. Although the 0.25% increase was accepted by an overwhelming majority, the minutes noted that not everyone agreed. Few Fed members said they wanted a 0.5% hike that would show even greater determination to lower inflation. “The participants who preferred an increase of 0.5% stated that such an increase would more quickly bring the target range closer to the levels they believed would achieve restraint of prices in the market, taking into account their views regarding the risks along the way,” the minutes read.
Meanwhile, St. Louis Federal Reserve President James Bullard said a more aggressive rate hike would now give the Federal Open Market Committee rate-setting committee a better chance of hitting inflation, which, while falling from the highs of 2022, had not yet fallen to the bank’s target.
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