Fed still puzzled by slow inflation
WASHINGTON — The persistence of slow inflation was the dominant topic at the Federal Reserve’s policymaking meeting in September, but most officials were still inclined to raise the Fed’s benchmark interest rate later this year.
The Fed is likely to raise rates so long as the medium-term economic outlook remains unchanged, according to an account of the meeting that the Fed published Wednesday.
The account said that recent hurricanes had not disrupted that outlook. The Fed expects slower growth for a few months, but it does not expect a long-term effect.
The Fed next meets Oct. 31 and Nov. 1, but investors expect the Fed will wait to raise its benchmark rate at its final meeting of the year, in December. The Fed has held rates at a low level to encourage economic growth; by raising rates, it is slowly ending that stimulus campaign.
The Fed said after the September meeting that it would begin to reduce its holdings of Treasury securities and mortgagebacked securities, which it accumulated beginning in 2008 as part of the effort to reduce borrowing costs for businesses and consumers. The Fed is now shaving $10 billion from its portfolio each month. It will add another $10 billion to the monthly total each quarter next year, until it reaches a monthly pace of $50 billion.
The Fed also indicated that it planned to raise its benchmark rate once more this year, following quarter-point increases in March and June. In economic projections released after the meeting, 12 of the 16 officials on the Federal Open Market Committee predicted a third rate hike. Janet Yellen, the Fed’s chair, recently reviewed the reasons to worry about low inflation but concluded that the weight of evidence did not warrant a shift in the Fed’s plans.
But the September minutes said that “a few” Fed officials opposed another 2017 rate move, and that “several others” remained on the fence. Charles Evans, president of the Federal Reserve Bank of Chicago, is among the skeptics.
“There’s room for a very honest discussion later this year as to whether or not it’s the right time to raise rates,” Evans said Wednesday.
On Wall Street Wednesday, stock indexes drifted to record highs as investors got ready for another round of corporate reports to begin.