Minutes of the October 2022 Federal Reserve meeting:

Federal Reserve officials were surprised by the pace of inflation and indicated in their last meeting that they expect higher interest rates to stay in place until rates fall, according to the minutes of the central bank’s September meeting.

In discussions that led to a 0.75 percentage point rate hike, policymakers noted that inflation particularly affects lower-income Americans.

They reiterated that interest rate hikes are likely to continue and higher rates will prevail until the problem shows signs of resolution.

The meeting summary stated that “participants felt that the committee needed to move to and then maintain a more restrictive political stance in order to fulfill the committee’s legislative mandate to promote maximum employment and price stability.”

Officials further noted that with inflation, “it has shown little sign of abating so far…they have raised their assessment of the trajectory of the fed funds rate likely to be necessary to achieve the committee’s goals.”

S&P 500 . Index gained a little in Wednesday after the minutes were released, some traders took one comment as a sign that the Fed could pull back from its rapid tightening if there is more turmoil in financial markets.

“Many participants noted that, particularly in the current highly uncertain global economic and financial environment, it will be important to calibrate the pace of further policy tightening with a view to mitigating the risks of significant negative impacts on the economic outlook,” the minutes stated. .

The meeting took place before the latest data stream showed that inflation pressures remain high, but not at the pace they were earlier this year. The Fed’s preferred inflation measure of consumer price expenditures rose 6.2% from a year ago — 4.9% excluding food and energy — in August, according to data last month that was well above the central bank’s 2% target.

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“Participants noted that inflation remained unacceptably high and well above the committee’s long-term target of 2 percent,” the minutes said. “Participants commented that recent inflation data has generally come in higher than expectations and that inflation is in turn falling more slowly than they had previously expected.”

Members of the Federal Open Market Committee that sets the rate indicated at the meeting that the economy needed to slow down for inflation to subside. They lowered their forecasts for the economy, forecasting GDP to grow at a rate of just 0.2% per year in 2022 and only 1.2% in 2023, well below trend and a significant decline from 2021, which saw the strongest gains since 1984.

Long-term inflation expectations

They said inflation was driven by supply chain problems that were not limited to goods but also to a shortage of labor.

However, officials also expressed optimism that the policy would help ease the labor market and lower prices. Officials recently said they do not expect rates to remain high until inflation drops to 2%.

“Participants considered that inflation pressures will gradually ease in the coming years,” the summary said.

The meeting concluded with the FOMC’s third consecutive approval of a 0.75 percentage point increase, while raising interest rates to the 3%-3.25% range. Markets widely expect to agree to a similar volume rise at the next meeting in early November.

Officials noted that they see a point coming when the pace of price hikes will at least slow, although they have not set a time frame for when that will happen.

The minutes said that FOMC members indicated that “it will be appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.”

They said the time will come after the Fed funds rate has “reached a sufficiently restrictive level”, and then “it will probably be appropriate to maintain that level for some time until there is convincing evidence that inflation is on track to return to 2. target percent.

The summary of economic forecasts at the meeting indicated that the “final interest rate,” or the end point for rate increases, would be around 4.6%. Markets expect the Fed to rise in early 2023 and then keep rates there throughout the year.

Correction: Data on the Federal Reserve’s preferred inflation measure for consumer price expenditures was released last month. An earlier version was wrong in timing.

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