US Federal Reserve Chairman Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, USA , May 1, 2024.
Kevin Lamarque | Reuters
Federal Reserve officials grew more concerned at their latest meeting about inflation, with members indicating they lacked confidence to move forward on interest rate cuts.
The minutes of the policy meeting of the Federal Open Market Committee from April 30 to May 1, published on Wednesday, indicated the apprehension of policymakers about when it would be time to relax their policies.
The meeting followed a series of measurements showing that inflation was more stubborn than officials had expected in early 2024. The Fed is targeting an inflation rate of 2%, and all indicators showed increases of prices well above this bar.
“Participants observed that although inflation has eased over the past year, there has been a lack of progress in recent months toward the Committee’s 2 percent target,” the report said. summary. “Recent monthly data showed significant increases in the price inflation components of goods and services.”
The minutes also show that “various participants mentioned their willingness to tighten policy further if inflation risks materialize in such a way that such action becomes appropriate.”
The FOMC voted unanimously at the meeting to keep its benchmark short-term borrowing rate within a range of 5.25% to 5.5%, a 23-year high where it has been since July 2023 .
“Participants believed that maintaining the current target range for the federal funds rate at this meeting was supported by inter-meeting data indicating continued strong economic growth,” the minutes state.
Since then, there have been gradual signs of progress in inflation, as the April Consumer Price Index showed inflation at an annual rate of 3.4%, slightly lower than March’s level. Excluding food and energy, the underlying CPI stood at 3.6%, its lowest level since April 2021.
However, consumer surveys reveal growing concerns. For example, the University of Michigan Consumer Confidence Survey showed the one-year outlook at 3.5%, the highest since November, while overall optimism has plummeted. A New York Fed survey showed similar results.
Risk of rising inflation?
Fed officials at the meeting highlighted several upside risks to inflation, particularly related to geopolitical events, and noted the pressure that inflation puts on consumers, particularly those at the lower end of the salary scale. Some participants said the rise in inflation at the start of the year could come from seasonal distortions, while others argued the “widespread” nature of the movements meant they should not be “overly discounted”.
Committee members also expressed concern that consumers are resorting to riskier forms of financing to make ends meet as inflationary pressures persist.
“Many participants noted signs that the finances of low- and moderate-income households were increasingly under pressure, which these participants perceived as a downside risk to the consumption outlook,” the lawsuit states. verbal. “They pointed to increased use of credit cards and buy now, pay later services, as well as increased delinquency rates for certain types of consumer loans.”
Officials were largely optimistic about growth prospects, although they expected some moderation this year. They also said they expected inflation to eventually return to the 2% target, but became uncertain about how long that would take and how high rates would impact the process.
Immigration has been repeatedly mentioned as a factor helping to both boost the labor market and support consumption levels.
The market lowers its expectations for rate cuts
Public remarks from central bankers since the meeting have taken a cautious tone.
Fed Governor Christopher Waller said Tuesday that while he did not expect the FOMC to have to raise rates, he warned it would need “several months” of good data before voting in favor of lowering rates. Last week, Chairman Jerome Powell expressed sentiments that weren’t as hawkish, while saying the Fed “will have to be patient and let restrictive policy do its job” while inflation remains high.
Markets continued to adjust their expectations for cuts this year. As of Wednesday afternoon, futures prices indicated about a 60% chance that the first decline would occur in September, although the prospects for a second decline in December were little better than a 50-50 chance. 50 heads or tails. Earlier this year, markets had priced in cuts of at least six-quarters of a percentage point.
cnbc
