Federal Reserve officials were preparing to begin slowing monetary policy support from mid-November. minute The conclusions from the September meeting emerged, and policymakers debated when they might need to raise rates amid rising inflation risks.
The Fed buys $120 billion in bonds each month and keeps the federal funds rate close to zero to cheapen borrowing and keep money flowing through the economy, stimulating demand and accelerating the recovery. However, after the September 21-22 meetings, they signaled that they could announce a plan to cut back on these asset purchases in early November. Minutes from the meeting, released Wednesday, provided additional details about that plan.
In the minutes, he suggested that “if a decision is made to reduce purchases at the next meeting, the reduction process could begin with monthly purchasing schedules starting in mid-November or mid-December.”
The minutes indicated that the process could end in the middle of next year. This bolstered the timeline that Fed chair Jerome H. Powell laid out at the post-meeting press conference.
At the same time, Fed officials have made it clear that they will continue to support the economy with low interest rates as the job market continues to improve. Hopes for multi-steps when it comes to rate hikes may be complicated by skyrocketing prices, with continued supply chain disruption due to the pandemic and rising rents increasing the likelihood of sustained increases.
The minutes showed that “various” meeting attendees thought rates should remain at or near zero for several years, warning that long-term trends that had driven inflation down before the pandemic would reignite. But “on the contrary, a number of Fed officials” said rates should rise next year, and “some of these respondents think inflation will remain high in 2022, with upside risks.”
The committee as a whole was concerned about supply chain disruptions that fueled inflation and hampered growth. They discussed various bottlenecks, including in the housing sector.
“Participants noted that housing construction was constrained by shortages of materials and other inputs, and home sales were lagging due to the limited supply of available homes,” the minutes added, and later added that “firms in a number of industries have had difficulty sustaining their businesses.” faced strong demand due to widespread supply chain bottlenecks and labor shortages.”
And officials noted that it can take time for them to fade.
“Most respondents saw inflation risks weighing on the upside due to concerns that supply disruptions and labor shortages could last longer and have larger or more lasting effects on prices and wages than currently assumed,” the minutes said.
“Participants noted that regional contacts generally do not expect these bottlenecks to be fully resolved until next year or later.”
Consumer prices jumped more than expected Last month, data released on Wednesday showed. The Consumer Price Index rose 5.4 percent year-on-year in September, faster than its 5.3 percent increase in August. From August to September, the index also rose 0.4 percent, above expectations.
The gains came as housing prices rose and food – especially meat and eggs – cost consumers more. Inflation, which has stripped away volatile food and fuel, is still rapid at 4 percent a year over the past month.
Fed officials have repeatedly said they expect price increases to moderate as the economy returns to normal, but have remained increasingly cautious as inflation slows and moderates.
“Like many of my colleagues, I believe the risks to inflation are to the upside and continue to tune in and pay attention to underlying inflation trends,” said Richard H. Clarida, vice chairman of the Fed. said during a conversation Tuesday.
Among the reasons for concern: Inflation expectations appear to be rebounding, at least by some measures.
Federal Reserve Bank of New York Consumer Expectations Survey This week showed that medium-term inflation expectations – for the next three years – rose from 4 percent in August to 4.2 percent in September. This is the highest level since the series began in 2013. Short-term expectations also jumped to 5.3 percent, setting a new record.