Fed Minutes: Almost all backed quarter-point hike
WASHINGTON >> Nearly all Federal Reserve policymakers agreed earlier this month to slow the pace of their rate increases to a quarter-point, with only “a few” supporting a larger half-point hike.
The minutes from the Fed’s Jan. 31-Feb.1 meeting said most of the officials supported the quarterpoint hike because a slower pace “would better allow them to assess the economy’s progress” toward reducing inflation to their 2% target. The increase raised the Fed’s benchmark rate to a range of 4.5% to 4.75%, the highest in 15 years.
The central bank’s rate hikes typically lead to increases in the costs of mortgages, auto loans, credit card borrowing and business lending.
At the meeting, Fed officials also unanimously agreed that “ongoing increases” in the Fed’s key rate “would be appropriate,” which points to additional hikes in the next two meetings, at least.
Overall, the minutes showed that the Fed’s policymakers emphasized their determination to keep rates high to curb high inflation even as they welcomed a slowdown since the fall.
Since the meeting, the outlook for inflation has become more worrisome. At a news conference Feb. 1, after the meeting, Chair Jerome Powell stressed that inflation, while still too high, was gradually cooling. He also suggested that it was still possible the Fed could quell inflation without raising rates so high as to cause widespread layoffs and a deep recession.
“The disinflationary process has started,” Powell said then, referring to the steady slowdown in yearover-year inflation from a peak of 9.1% in June to 6.5% in December.
But since then, a succession of economic reports has pointed to a still-robust economy despite the Fed’s eight rate hikes over the past year. Hiring has accelerated, retail sales have rebounded and revised figures show that inflation pressures remain high and might require more Fed rate hikes than many had assumed.
Last week, a government report showed that consumer price inflation rose faster than expected from December to January, and the year-over-year figure barely slowed last month, to 6.4%. With revisions to previous months factored in, inflation rose 4.6% he previous three months, up from 4.3% in December.
In the past three months, so-called core prices, which exclude volatile food and energy costs, have risen at a 4.6% annual rate. That is below the year-over-year number and suggests that more declines are coming. But that figure is up from 4.3% in December.
With the economy now looking stronger and inflation more persistent, economists expect the Fed to raise its key rate higher this year than previously projected. Many now expect the central rate to boost its benchmark short-term rate to a range of 5.25% to 5.5%.