July 2023 Fed Minutes:

Global Courant

Nearly all Federal Reserve officials indicated at their June meeting that further tightening is likely, albeit at a slower pace than the rapid increases that have characterized monetary policy since early 2022, according to minutes released Wednesday.

Policymakers decided against a rate hike over concerns about economic growth, even though most members believe further hikes are on the way. Citing the policy’s delayed impact and other concerns, they saw room to skip the June meeting after pushing through 10 consecutive rate hikes.

Officials believed that “leaving the target range unchanged at this meeting would give them more time to assess the economy’s progress toward the Committee’s goals of maximum employment and price stability.”

Members of the Federal Open Market Committee expressed hesitation over a variety of factors.

They said a short break would give the commission time to assess the impact of the increases, which total 5 percentage points, the most aggressive moves since the early 1980s.

The economy faced headwinds from tighter credit conditions, including higher interest rates, for households and businesses, which were likely to weigh on economic activity, hiring and inflation, although the magnitude of this effect remained uncertain. minutes.

The unanimous decision not to raise interest rates came “taking into account the significant cumulative tightening of monetary policy and the delays with which policy affects economic activity and inflation.”

Markets reacted little to the release. The Dow Jones Industrial Average fell about 120 points by the last hour of trading, while government bond yields were sharply higher.

Discord at the Fed

The document reflected some disagreement among members. According to projection materials released after the June 13-14 session, all but two of the 18 participants expected at least one raise to be appropriate this year, and 12 expected two or more.

Participants in favor of a 25 basis point increase noted that the labor market remained very tight, that the momentum of economic activity was stronger than previously expected, and that there were few clear signs that inflation was on track to return to the Committee’s 2 percent target over time,” the minutes said.

Even among those in favor of tightening, there was a general feeling that the rate of increases, including four consecutive increases of 0.75 percentage points at consecutive meetings, would slow down.

Many (officials) also noted that, following the rapid tightening of monetary policy last year, the Committee had slowed the pace of tightening and that a further moderation in the pace of policy tightening was appropriate to allow more time. care about the effects of cumulative tightening and assess their policy implications,” the minutes said.

Since the meeting, policymakers have mostly stuck to the narrative that they don’t want to give in too quickly to the inflation battle.

In remarks to Congress a week after the June 13-14 meeting, Fed Chairman Jerome Powell said the central bank has “a long way to go” to bring inflation back to the Fed’s target of 2%.

He also stressed a united front among the 18 members of the Federal Open Market Committee, noting that all of them foresee interest rates staying where they are at least until the end of the year, and that all but two all the interest will rise.

That’s largely true, despite some misgivings. For instance, Raphael Bostic, president of the Atlanta Fed, has said he thinks rates are sufficiently restrictive that officials can now back off pending the delayed impact of the 10 rate hikes making their way into the economy.

The numbers were also largely on the Fed’s side, even as inflation remains well above target.

Most recently, the Fed’s preferred inflation gauge only saw a 0.3% increase in May, though it still reflected an annual rate of 4.6%.

The labor market is also showing some signs of easing, although job openings still outnumber available workers by a margin of nearly 2 to 1. Fed officials have stressed the importance of reducing that disparity as they look to dampen demand which has driven up inflation.

July 2023 Fed Minutes:

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