MNI: Hawkish FOMC Shows No Sign Of Pivot--Minutes

Federal Reserve officials agreed inflation remains far too high and interest rates must keep rising to more restrictive levels and stay there for a while, showing little hint of a near-term shift in the course of policy, according to minutes from the FOMC’s September meeting released on Wednesday.

The minutes also did not mention financial stability concerns, which are top of mind for investors worried about possible spillovers from the UK's pension crisis.

"In light of the broad-based and unacceptably high level of inflation, the intermeeting news of higher-than-expected inflation, and upside risks to the inflation outlook, participants remarked that purposefully moving to a restrictive policy stance in the near term was consistent with risk-management considerations," the minutes said.

"Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action. Several participants underlined the need to maintain a restrictive stance for as long as necessary."

The Fed hiked interest rates by 75 basis points for a third straight time last month and downgraded its growth forecast sharply this year to just 0.2%. It also boosted its projected peak for the fed funds rate to 4.6% from 3.8%. Another 75bp increase for the fed funds rate is expected at the November meeting.

The Fed repeated that "as the stance of monetary policy tightened further, it 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."

U.S. consumer price data due out Thursday is expected to show price pressures remain sticky, with core CPI forecast to hit a new cycle high of 6.5% as rent costs keep rising and inflation remains broad.

"Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the minutes said. "Participants agreed that uncertainty associated with their economic outlooks was high and that risks to their inflation outlook were weighted to the upside."

FOMC policymakers are still worried about a labor market they see as too strong to allow inflation pressures to subside. Unemployment dropped to a 50-year low of 3.5% in September.

"Participants judged that a softening in the labor market would be needed to ease upward pressures on wages and prices," the FOMC said. "Participants expected that the transition toward a softer labor market would be accompanied by an increase in the unemployment rate."