Fed minutes for detailed debate on rate hike endgame

The two-day meeting ended on February 1 when the central bank raised its target interest rate by a quarter of a percentage point, a return to more standard rate hike size after a year of successive three-quarter point and half-point increases.

In a press conference after that meeting, Fed Chairman Jerome Powell said that a return to smaller rate hikes was meant to allow for a more phased hunt for a potential stopping point, and that officials had “quite a lot about the way forward.” some talking” session. The central bank is nearing the end of its hiking cycle.

But that session was also held ahead of key data releases that showed unusually strong job gains in January, and lower-than-expected inflation — a trend expected to continue this week as the Fed A report will be released on Friday on the preferred inflation index performed in January.

The Fed uses the personal consumption expenditure price index in setting its 2% inflation target. Economists polled by Reuters estimated it improved only marginally in January, falling from 4.4% to 4.3% on an annual basis once more volatile food and energy components are excluded. That core inflation measure is actually up 0.3% to 0.4% on a month-over-month basis.

Since the meeting, some Fed officials have acknowledged that they pushed for a continuation of the large half-point rate hike at the last meeting, while investors have broadened their own outlook for the end of the Fed.

Most do not see that the Fed is now returning to large half-point increases because they have slowed down.

But they see the Fed moving rates higher than before and leaving them at higher levels for longer periods – a change likely welcomed by Fed officials concerned with market pricing given the potential to bring inflation back to the 2% target. His resolution was understood.

The minutes, to be released at 2 p.m. ET (1900 GMT), could show how aggressive the Fed is leaning towards policy, especially at a meeting that proved to be the last for former Vice Chairman Lael Brainard, who was one of the most Most detailed in outlining the reasons why inflation is slowing faster than expected and sensitive to the risks facing the economy under tight monetary policy.

Brainard, who left the Fed to head President Joe Biden’s National Economic Council, embodied one aspect of the discussion among those who recommend caution in further rate hikes as the economy is still in full swing. have not adjusted in the way that the Fed has done to date, and who feel that businesses and households are proving more resilient to rising interest rates and may need even higher interest rates to fully reverse inflation. Restraint may be required.

While there was little disagreement last year over what the Fed needed to do as inflation hit a 40-year high, the central bank is now in two-way discussions “to ascertain the extent to which the economy is resilient.” The minutes, Evercore analysts wrote in an analysis earlier, reflect the timing gap on a higher short-term neutral rate versus the monetary tightening needed to slow spending by businesses and households.

While the minutes released today are notably dated, given the jobs and inflation numbers released since then, policymakers are expected to start their next month with new economic and interest rate projections released after the Fed’s March 21-22 meeting. Will update thoughts. (Reporting by Howard Schneider; Editing by Dan Burns)

The text of this story is published from a wire agency feed without any modification.