(Bloomberg) – Federal Reserve officials have pledged to raise interest rates to a limited level in the near term and hold there to bring inflation back on target, although some say it’s important must adjust the rallies to reduce the risk.
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“Several participants noted that, especially in the current uncertain global financial and economic environment, it is important to adjust the pace of policy tightening further with the aim of mitigating risk of a material adverse effect on the economic outlook,” according to the minutes from their September 20-21 rally released Wednesday in Washington.
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During the meeting, US central banks agreed to raise the benchmark lending rate for the third time in a row by 75 basis points, raising it to a target range of 3% to 3.25% as they resisted pressure. stubborn inflation.
“Many participants emphasized that the costs of taking too few actions to reduce inflation will likely outweigh the costs of taking too many actions,” the minutes said.
US stocks fluctuated after the release, while Treasury yields remained lower and the dollar was little changed. Traders are still betting that the Fed will raise rates again next month by 75 basis points.
The minutes showed a committee unanimously agreed to bring inflation back to the Fed’s 2 percent target, while some policymakers recommended caution as interest rates hit a restricted area.
Aggressive hiking
Criticized by critics for its slow response to mounting price pressures, the Fed launched its most aggressive tightening campaign since the 1980s. Starting with near-zero rates in March, it 300 basis points increase and signal more to come.
Fed officials expect a rate hike to 4.4% by the end of the year, according to their median estimates released last month, and 4.6 percent in 2023.
That comes with an economic cost: Higher borrowing costs are forecast to slow growth to 1.2% next year and lift the unemployment rate to 4.4%. It was 3.5% in September.
“Several participants observed that as policy shifts into restrictive territory, risks become more dual, reflecting the emergence of downside risk that the cumulative restraint in aggregate demand will exceed the level needed to bring inflation back to 2%,” the minutes showed.
On target
Inflation, as measured by the Fed’s preferred gauge, has exceeded the central bank’s 2% target for more than a year, testing public confidence that officials can lower it.
“They agree that, by purposefully shifting its policy to an appropriately restrictive stance, the committee will help ensure that inflated inflation does not become entrenched and inflation expectations do not become inadequate.” accurate,” the minutes said.
Rapidly rising borrowing costs have slowed housing activity, but other parts of the economy show steady demand.
Employers added 263,000 jobs in September, and a consumer inflation report showed prices rose 8.3% in the 12 months through August. September’s consumer price index is expected. on Thursday, is expected to show a still brisk 8.1 percent gain, with core inflation set to return to four-decade highs.
(Update on the market in the fifth paragraph.)
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