Fed minutes show inflation resolve, concern on market views

“Participants noted that, because monetary policy works so important through financial markets, unwarranted easing of financial conditions, especially if motivated by an understanding public confusion about the committee’s response function, would complicate the commission’s efforts to restore price stability,” according to the minutes. of the December 13-14 meeting of the Federal Open Market Committee announced in Washington on Wednesday.

US stocks pared gains after the report, while yields on the Fed’s policy-sensitive two-year Treasuries rose and the dollar remained lower.

U.S. central banks raised their benchmark lending rate by half a percentage point at their meeting, slowing down after a string of four straight 75 basis point increases. Officials also released new forecasts that suggest a hawkish bias with more rate hikes expected in 2023 than investors expected.

The minutes showed that Fed officials intend to reduce inflation back to their 2% target given the risk of rising unemployment and slower growth.

“Several participants commented that the average of participants’ assessments of the appropriate path of the federal funds rate in the summary of economic projections, which track notably on measures based on market on policy rate expectations, underscoring the committee’s strong commitment to bringing inflation back to normal. its 2% target,” the minutes said. There is no official prediction of a rate cut in 2023.

The Fed’s move last month extended its most intense tightening cycle since the 1980s. Starting from near zero in March, officials raised their benchmark lending rate through meetings. consecutive meetings to the target level of 4.25% to 4.5%, the highest level since 2007.

‘Work more’

However, Chairman Jerome Powell said at a news conference after the meeting that the committee had “a lot of work to do,” explaining how high rates will eventually go up and how long the Fed holds them on is important. than the speed at which officials get there. destination.

He also described the labor market as “unbalanced” and “extremely tight”, and warned that a return to stable prices would likely require some “relaxation” in market conditions. job school.

An earlier report on Wednesday showed job openings – a key metric for Powell – little changed at the November highs, according to economists polled by Bloomberg. Ahead of Friday’s monthly jobs report, US payrolls are forecast to increase by 200,000 in December.

Quarterly economic estimates updated by Fed officials last month showed interest rates rising to 5.1 percent this year, according to their median forecast, up from 4.6 percent in the forecast round. earlier in September.

The Fed staff said the possibility of a recession was “a reasonable alternative to the baseline outlook” of slow economic growth in 2023.

Negative risk

“Slow growth in real domestic private-sector spending is expected next year, the bleak global economic outlook and persistently tightening financial conditions are seen as are risks that reduce the underlying predictability of real economic activity”.

17 out of 19 officials expect interest rates to be at or above 5.1% this year. By comparison, not a single Fed official in September had forecast interest rates above 5% in 2023.

Policymakers will meet on January 31 and February 1. By Wednesday, the futures market had priced in at least a quarter of a percentage point.

The minutes said officials would decide “meet by meeting” on the rate.

A more restrictive policy stance is expected to lift the unemployment rate to 4.6% by year-end, from the 3.7% seen in November, the Fed’s latest forecast shows.

Their forecast also gives a higher-average estimate of core inflation of 3.5% in 2023, about 1 percentage point lower than the November 4.7% rate of the consumer spending price index. core core.

This story has been published from the electronic agency’s feed without any modification to the text.