First modification:
A “substantial majority” of officials believed that small rate hikes “will probably soon be appropriate,” according to minutes of the Nov. 1-2 meeting released Wednesday.
More climbs, but less aggressive. Federal Reserve officials concluded in early November that the central bank of the world’s largest economy should moderate the pace of interest rate hikes to prevent excessive tightening from leading to an economic recession.
This Wednesday the minutes of the meeting that Fed officials held on November 1 and 2 were presented, where “a substantial majority of the participants considered that it would probably be appropriate to reduce the pace of the increases soon.”
“Several” officials had concluded that rates would ultimately reach a higher level than previously anticipated. Central bank policy makers saw “very little sign that inflationary pressures were easing.”
Despite this, they considered that small rate hikes would “probably soon be appropriate.” The Fed is expected to raise its short-term interest rate by half a point and that affects many consumer and business loans.
“Slowing down would give the (Fed) a chance to assess the economic outlook and see where they stand,” Jennifer Lee, a senior economist at BMO Capital Markets, wrote in a research report. “If there’s no wild inflation report before the next meeting, (a half percentage point hike) looks very reasonable in December. But clearly the Fed isn’t done yet.”
Wage increases, the result of a strong labor market, combined with weak productivity growth, were “inconsistent” with the Fed’s ability to meet its 2% annual inflation target, policymakers concluded, according to the minutes.
Some policy makers expressed hope that falling commodity prices and unblocking in the supply chain “should contribute to lower inflation in the medium term.” In fact, the government reported earlier this month that the rise in prices moderated in October, in a sign that inflationary pressures may be starting to ease.
Consumer inflation stood at 7.7% compared to the previous year and 0.4% compared to September. The year-on-year rise, while painfully high by any measure, was the smallest rise since January.
The minutes now show that continued rate hikes would be “essential” to prevent Americans from waiting for inflation to continue indefinitely and that the odds of a US recession over the next year had risen to almost 50%, due to risks of slower consumer spending, global economic risks and further interest rate hikes.
with PA
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