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Fed Members Back Faster Rate Hikes to Tame Inflation, Fed's Minutes Show

Economy Aug 18, 2022 02:34
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By Yasin Ebrahim

Investing.com -- Federal Reserve members were unified in their view that pushing interest rates to a restrictive level was needed to bring down inflation toward the central bank’s target, the minutes of Fed’s 26-27 July meeting showed Wednesday.

At the conclusion of its previous meeting on July. 27, the Federal Open Market Committee raised its benchmark rate by 0.75% to a range of 2.25% to 2.5%.

"In their assessment of the policy outlook, market participants expected significant policy tightening in coming meetings as the committee continued to respond to the current elevated level of inflation," the fed's minutes showed. "Nearly all respondents to the Desk survey anticipated a 75 basis point increase in the target range at the current meeting, and most expected a 50 basis point increase in September to follow," it added.

In the press conference that followed the monetary policy statement, Fed Chairman Powell signaled that the central bank may consider a pause on rate hikes after the September meeting to assess the impact of tightening on the economy and inflation.

At the July meeting there appeared to support among members to reassess the pace of tightening at some point, the minutes showed, though some were in favor of maintaining the Fed's benchmark rate at "sufficiently restrictive level" for some time to ensure that inflation was firmly on a path back to 2%.

Since the July fed meeting, economic data including signs of easing inflation and surge in monthly jobs have bolstered bets on a less hawkish rate hikes.

Fed members, however, were quick to pushback against the prospect of easing the pace of monetary policy tightening, reiterated that the fight against inflation is far from over. Earlier this month, San Francisco Federal Reserve Bank President Mary Daly “inflation remains far too high and not near our price stability goal.” 

The slower pace of inflation seen last month was mainly driven by falling energy prices, but core inflation, which excludes food and energy, will prove key to determining whether inflation will remain higher for longer.

“All eyes will be focus on how sticky is core inflation  … that's going to start driving the next leg of this inflation discussion,” Robert Conzo, CEO of The Wealth Alliance told Investing.com in an interview on Tuesday.

The Fed has hiked rates by 225 basis points, or 2.25% in just five months, prompting worries that the central bank could overdo do it on monetary policy tightening, pushing the economy into a recession.

While the Fed has repeatedly pointed to a strong jobs market as an indicator of economic strength, the central bank is “starting to get concerned about recessionary fears,” Conzo said, adding that the prospect of a 50 basis point rate hike for September is “priced in.”

Further clues on monetary policy are just a week away as investors await commentary from Powell at the Jackson Hole Economic Symposium on Aug. 25-27. 

Fed Members Back Faster Rate Hikes to Tame Inflation, Fed's Minutes Show
 

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