US inflation outlook has deteriorated since May meeting, Fed says in minutes

The deteriorating inflation situation and concern about the loss of confidence in the Federal Reserve’s power to make it better led US central bank officials to converge on a disproportionate rise in interest rates and a steady repetition BC’s intention to keep prices under control, showed the minutes of the June 14-15 monetary policy meeting.

Based on data released in the days prior to the session, “participants agreed… that the short-term inflation outlook has deteriorated since the time of the May meeting,” the minutes said, justifying the 0.75 percentage point increase in interest rates. and a move towards a “restrictive” monetary policy.

With households under pressure from rising food and gas prices and no evidence that the Fed’s actions have so far begun to stem the fastest rise in inflation in 40 years, “many participants judged that a significant risk… was that the High inflation could consolidate if the public began to question the decision of the Federal Open Market Committee (FOMC) to adjust the monetary policy stance as warranted,” the minutes released on Wednesday showed.

The result was the first 0.75 percentage point rate hike since 1994 and the promise of more to come, with participants judging that a 50- or 75-bp hike is likely to be appropriate at the policy meeting later this month.

In a show of unanimity that erased the typical divisions between “hawks” (more conservative about inflation) and “doves” (more concerned with economic growth), the group noted the need to mount a public communication campaign that would leave no doubt. that they were “strongly committed” to winning the inflationary war.

Since then, Fed Chair Jerome Powell has amplified his own rhetoric, declaring last week that there was a “clock ticking” at the Fed to show that the bank could tame prices before public psychology began to change.

Concerns already under way were raised at the meeting, with “many participants” concerned about the risk that “long-term inflation expectations could be starting to rise”.

The minutes did not mention the risk of recession and, in fact, Fed officials said they believed the data showed that US GDP “was expanding in the current quarter” with the job market still tight.

But they acknowledged that the risks were for the worse, in particular that the Fed’s monetary policy could have a bigger impact than anticipated.

“Participants agreed that the economic outlook warranted a shift to a tighter monetary policy stance and recognized the possibility that an even tighter stance might be appropriate if heightened inflationary pressures persist,” the minutes said.

Investors are currently expecting the Fed to deliver another 75 basis point rate hike at its next meeting on July 26-27, as part of what has become a rapid change in monetary policy.

Less than a year ago, officials were still promising to keep the cheap money faucets wide open — with the Fed funds rate close to zero and $120 billion in monthly bond purchases pouring liquidity into the system — until there was “substantial progress.” ” in the labor market and inflation was “moderately on track” to exceed the Fed’s 2% target “for some time.”