WASHINGTON (AP)—Federal Reserve officials agreed at a meeting earlier this month that they may need to raise interest rates to levels that would weaken the economy as part of efforts to curb inflation. . .
At the same time, many politicians agree that, after a series of rapid tariff increases in the coming months, they can “assess the impact” of the tariff increases and raise wages at slower rates depending on the state of the economy. . .
Since this month’s meeting, politicians have raised key short-term interest rates by half a percentage point, twice the average increase. Most officials agreed that a half-point increase was “probably appropriate” at the next meeting in June and July, according to meeting minutes released Wednesday, May 3-4. Chairman Jerome Powell said after this month’s meeting that the half-point increase would be “negotiated” at the next two meetings.
All officials thought the Fed should raise the core interest rate “immediately” to a level where it could not stimulate or curb growth, which officials said was 2.4%. Some politicians say they’ll probably reach that point by the end of this year.
But the minutes show that there may be heated debate among politicians after the June and July meetings on how to tighten loans quickly. The economy showed signs of further slowdown as stock markets tumbled after the Fed meeting.
Government reports, for example, show signs that new and existing home sales have fallen since this month’s Fed meeting, and factory output is rising at a slower rate. Gennady Goldberg, senior interest rate strategist at TD Securities, suggested that the minutes released Wednesday may reflect a more hawkish stance by the Fed, which is focusing more on raising rates to curb inflation than it is now.
Some officials, notably Raphael Bostic, chairman of the Federal Reserve Bank of Atlanta, hinted after meeting this month that the Fed may reconsider its September rate hike.
Cleveland Federal Reserve Governor Loretta Mester said the Fed could slow the rate hike by perhaps a quarter point if there is “convincing evidence that inflation is falling”.
“But if inflation is not lowered, a faster rate hike may be needed,” he said.
The minutes, released Wednesday, show some Fed officials preliminary conceded that the latest inflation data “may indicate that overall price pressure may not get worse.” At the same time, these officials – individual Fed politicians were not named in the minutes – stressed that it was “too early to allow inflation to peak”.
Fed officials unanimously said, “The US economy is very strong, the labor market is very tight, and inflation is very high and above the Fed’s 2% target. Powell expressed similar sentiments at a press conference on May 4.
Fed officials are betting that the overall strength of the economy will allow it to withstand a sharp rise in borrowing rates without leading to lengthy layoffs or recessions.
It was the first increase of this size since 2000 when Fed officials decided this month to raise base rates by half a percentage point, in the range of 0.75 percent to 1 percent. Authorities also announced that they will begin cutting the massive $9. A trillion balance, which has more than doubled since the pandemic.
The balance sheet grew as the Fed bought nearly $4.5 trillion worth of Treasury and mortgage bonds after the pandemic recession struck to try to keep long-term rates low. On June 1, the Fed plans to allow these securities to begin redemption without changing them. It should also increase the value of long-term loans.
Powell said the Fed is determined to raise rates high enough to keep inflation in check, leading many economists to expect the fastest rate hike in three decades this year. Powell said the central bank is aiming for a “soft landing” where higher interest rates cool borrowing and enough spending to slow the economy and inflation. But most economists doubt that the Fed can reach a narrow conclusion without triggering an economic collapse.
Share prices fell on fears that the Fed’s rate hike would plunge the economy into recession. The S&P 500 fell for seven consecutive weeks, the longest drop since the 2001 dot-com bubble. together on Wednesday.
The minutes also showed that some politicians decided it was appropriate to consider selling some of their mortgage-backed securities holdings rather than simply letting them pay off. The minutes said the sale would facilitate the Fed’s transition to a portfolio composed predominantly of Treasuries.
The Federal Reserve said in September it would allow monthly payments of up to $30 billion in mortgage-backed securities and $60 billion in Treasury securities. Many analysts doubt that the mortgage bond limit will be reached as mortgage rates have risen more than 2 percent since the beginning of the year. This means that fewer homeowners will refinance their mortgages because current mortgage rates are lower than those currently available in the mortgage market.
Less refinancing will force the Fed to sell mortgage-backed securities to keep its balance sheet plans alive.
Source: Breitbart
