MNI: Fed Needs More Inflation Progress To Cut Further-Minutes
MNI (WASHINGTON) - Federal Reserve officials indicated they are content to keep interest rates on hold for the foreseeable future, particularly given upside risks to the inflation outlook and policy uncertainty from Washington, according to minutes from the late January meeting released Wednesday.
"Participants indicated that, provided the economy remained near maximum employment, they would want to see further progress on inflation before making additional adjustments to the target range for the federal funds rate," the minutes said.
In discussing the outlook for monetary policy, participants observed that the Committee was well positioned to take time to assess the evolving outlook for economic activity, the labor market, and inflation, with the vast majority pointing to a still-restrictive policy stance."
Fed members cited upside risks to the inflation outlook, including possible effects of looming changes in trade and immigration policy, geopolitical factors and strong-than-expected household spending. A couple officials said risks to the price stability mandate were now greater than those to the employment mandate, the minutes said.
"Business contacts in a number of districts had indicated that firms would attempt to pass on to consumers higher input costs arising from potential tariffs," the minutes said.
The Fed kept rates steady at 4.25%-4.5% last month and signaled little urgency to make any further cuts to borrowing costs until policymakers see evidence that progress on inflation has resumed. Recent key economic data showed a sharper-than-expected spike in consumer prices in January and a decline in the jobless rate to 4.0%.
"Many participants noted that the Committee could hold the policy rate at a restrictive level if the economy remained strong and inflation remained elevated, while several remarked that policy could be eased if labor market conditions deteriorated, economic activity faltered, or inflation returned to 2% more quickly than anticipated," the report said.
The minutes also indicated Fed officials are considering changes to their balance sheet reduction strategy. "Regarding the potential for significant swings in reserves over coming months related to debt ceiling dynamics, various participants noted that it may be appropriate to consider pausing or slowing balance sheet runoff until
the resolution of this event."