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Free AccessMNI: Fed Says Likely Appropriate To Slow Hikes 'At Some Point'
Federal Reserve officials officials emphasized data dependency when it comes to future rate rises but made clear the FOMC intends to move policy to a restrictive setting while potentially moving in smaller steps going forward, the minutes from the July meeting showed.
"In light of elevated inflation and the upside risks to the outlook for inflation, participants remarked that moving to a restrictive stance of the policy rate in the near term would also be appropriate from a risk-management perspective because it would better position the Committee to raise the policy rate further, to appropriately restrictive levels, if inflation were to run higher than expected," the minutes said.
"Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation."
The report offered no indication that officials see inflation as having peaked, and made no mention of recession prospects despite growing fears that one might be looming -- although it did acknowledge risks to growth. "Participants agreed that there was little evidence to date that inflation pressures were subsiding," the minutes from the July meeting said.
"Some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2%," the minutes showed.
The U.S. central bank is fighting an inflation surge it worries could get out of control if consumers' inflation expectations spike sharply, particularly over a longer horizon.
The Fed's preferred inflation measure, the PCE inflation index, eased in June to 6.8%, still more than three times the central bank's official 2% goal. The CPI is 8.5% in the year to July. The July rate hike brought official borrowing costs to a range of 2.25% to 2.5%.
Staff projections at the July meeting were "noticeably weaker than the June forecast" and was expected to fall to trend in the second half of 2023, while the unemployment rate was projected to start rising in the second half of 2022 meet the natural rate of 4% at the end of 2023, minutes showed. Staff expected PCE inflation of 4.8% this year and core inflation at 4%, before falling to 2.6% in 2023 and 2% in 2024.
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Why MNI
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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.