Fed Officials Less Confident on the Need for More Rate Hikes, Minutes Show
Federal Reserve officials were divided at their last meeting over where to go with interest rates, with some members seeing the need for more increases while others expected a slowdown in growth to remove the need to tighten further, minutes released Wednesday showed, CNBC reported. Though the decision to increase the Fed’s benchmark rate by a quarter percentage point was unanimous, the meeting summary reflected disagreement over what the next move should be, with a tilt toward less aggressive policy. At the end, the rate-setting Federal Open Market Committee voted to remove a key phrase from its post-meeting statement that had indicated “additional policy firming may be appropriate.” The Fed appears now to be moving toward a more data-dependent approach in which myriad factors will determine if the rate-hiking cycle continues. “Participants generally expressed uncertainty about how much more policy tightening may be appropriate,” the minutes said. “Many participants focused on the need to retain optionality after this meeting.” Essentially, the debate came down to two scenarios. One that was advocated by “some” members judged that progress in reducing inflation was “unacceptably slow” and would necessitate further hikes. The other, backed by “several” FOMC members, saw slowing economic growth in which “further policy firming after this meeting may not be necessary.”
In related news, Federal Reserve policymakers also suggested that they viewed with concern the partisan standoff over the debt limit, with “a number” of them saying earlier this month the central bank should be ready to act to preserve financial stability if needed, Bloomberg reported. Those signals were included in minutes of the Fed’s May 2-3 policy meeting, released on Wednesday. “Many participants mentioned that it is essential that the debt limit be raised in a timely manner to avoid the risk of severely adverse dislocations in the financial system and the broader economy,” the Fed said in the release. Republican lawmakers and the Biden administration remain at loggerheads over boosting the debt limit, as they were when the Fed met. Negotiators have so far been unable to agree on conditions, with GOP members demanding sweeping spending cuts Democrats oppose and the Democrats urging revenue measures that Republicans reject. Chair Jerome Powell has in public repeatedly said that “no one should assume that the Fed can protect the economy” if the Treasury can’t make good on all federal obligations. Read more.
Thursday, May 25, 2023
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