The Federal Reserve’s February meeting minutes, released on Wednesday, show that US inflation is slowing, but not sufficiently to allow the Fed to ease monetary policy.
According to the document, the country’s inflation “remained well above” the 2% target, while labor markets “remained very tight, contributing to continued upward pressures on wages and prices.”
“Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases, but stressed that significantly more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path,” the minutes said, adding that “ongoing” rate hikes will be required. The Fed approved another 25-basis-point increase at the meeting, bringing the rate to a target range of 4.5%-4.75%.
The magnitude of the upcoming rate hikes has not been disclosed, and the minutes show that officials are divided on the subject. However, St. Louis Fed President James Bullard suggested in an interview with CNBC that a more aggressive hike would give the regulator a better chance of reining in inflation at a faster pace.
“It’s become fashionable to say, ‘Let’s slow down and feel our way to where we need to go.’ We’re still not at the point where the committee decides on the so-called terminal rate… You’ll know when you’ve arrived if the next move is up or down. Our risk now is that inflation does not fall and reaccelerates, and then what? “Let’s be aggressive now, and get inflation under control by 2023,” he said.
In the United States, inflation rose at a 6.4% annual rate in January, up 0.5% from December. Analysts anticipate another quarter-point hike in March, followed by two more later in the year, bringing the indicator to a high of 5.25%-5.5%. Market experts, however, warn that if the regulator moves too quickly or raises the interest rate too high, the economy could enter a recession.
