Officials’ concerns about inflation fueled by the war with Iran intensified at the latest meeting of the US central bank, with a growing number of them open to the possibility of an interest rate hike in a sign that incoming president Kevin Warsh will inherit an increasingly hardline group of central bankers. This is the photograph that emerges from the minutes of the meeting published by the Fed itself.
The key steps on tightening
Members of the Federal Open Market Committee (FOMC), at their last meeting on April 28-29, generally believed that “persistent high levels of inflation, coupled with uncertainty regarding the duration and economic implications of the conflict in the Middle East, may make it necessary to maintain the current monetary policy stance for a longer period than previously expected.”
Although the FOMC, the body that sets interest rates, voted again to keep the key rate between 3.5% and 3.75%, the meeting recorded four votes against, the highest number since 1992.
“Several participants underlined that it would probably be appropriate to reduce the target range for rates once there are clear signs of a stable return of disinflation or if concrete signs of greater weakness in the labor market emerge – we read – The majority of participants, however, highlighted that a certain tightening of monetary policy would probably be necessary if inflation continues to remain persistently above 2%”.
To address this eventuality, “many participants indicated that they would have preferred to eliminate from the post-meeting statement the part that suggested an accommodative stance regarding the likely direction of future decisions,” it is underlined.
Voting and waiting
At that meeting, as has already emerged, the following voted against: Stephen Miran, who would have preferred to reduce the target rate range by 25 basis points, and Beth Hammack, Neel Kashkari and Lorie Logan, who supported maintaining the target rate range, but not the inclusion of an expansionary trend in the statement. Voting in favor of the decision were: Jerome Powell, John Williams, Michael Barr, Michelle Bowman, Lisa Cook, Philip Jefferson, Anna Paulson and Christopher Waller.
When discussing monetary policy actions, participants generally judged that the current policy rate was within the range of plausible estimates of its neutral level and that the Committee remained well placed to base the size and timing of adjustments to the policy rate on incoming data, the evolving outlook and the balance of risks. They noted that keeping the key rate unchanged would allow the Committee to gather additional information on the impact of developments in the Middle East and other factors on the economic outlook, before determining whether adjustments to the rate were necessary.
