Fed Signals Rate Hike Unless Inflation Cools
Fed Signals Rate Hike Unless Inflation Cools
The News
Federal Reserve officials said they will likely have to raise interest rates in the coming months if inflation does not cool, according to minutes of the July 28-29 policy meeting released Wednesday.
"Many participants assessed that policy tightening would likely be necessary if inflation did not decline," the summary of the meeting said.
The Federal Open Market Committee voted 9-3 in July to hold its benchmark rate at 3.5%-3.75%. Three regional Fed presidents — Beth Hammack, Lorie Logan and Neel Kashkari — voted to raise rates immediately.
Timeline
Annual inflation ran at 3.4%, well above the Fed's 2% target. Nonfarm payrolls fell by 23,000 for the month while the unemployment rate dropped to 4.1%.
The FOMC met and voted 9-3 to leave the benchmark rate unchanged at 3.5%-3.75%, with three dissents in favor of an immediate hike.
The Fed published the minutes, revealing that many officials saw a hike as likely if inflation stayed elevated. Markets priced roughly 34.6% odds of a September increase after the release.
Reactions
The dissenters argued that acting early would head off a larger, more disruptive tightening cycle later.
Most officials still expected prices to cool steadily, according to the minutes, but many acknowledged inflation could stay elevated longer than their projections assumed.
Wall Street's read, as reported by CNBC, Forbes, IBTimes and The Independent: a hold in September, with a hike possible in December.
What's Next
The next FOMC decision comes in September, and traders currently expect no change. The December meeting is where markets see the greater chance of an increase.
The minutes also show Chair Kevin Warsh floated cutting the number of annual FOMC meetings from eight to six. No decision was made.
More
Higher rates would feed straight through to household borrowing costs — mortgages and credit cards included. That is the practical stake in a fight the minutes show the committee has not settled: whether recent softer inflation readings are enough to keep the Fed on hold, or whether prices staying above target forces its hand.
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