The uncertainty surrounding the trajectory of the economy including difficulties in estimating the state of financial markets, potential oil price shocks, and the impact of union strikes, led to Federal Reserve officials to adopt a cautious stance at their meeting in Septemberaccording to the minutes.
The cautious approach comes as debate continues over whether further interest rate hikes are necessary, according to council meeting minutes. September 19 and 20 published on Wednesday.
“The majority of participants continue to judge the future path of the economy as uncertain”noted minutes from a meeting in which the central bank agreed to keep rates steady, even as the 12-7 majority showed new projections that one more hike may eventually be needed of the year to ensure that inflation returns to the target. %.
According to the minutes, the variability of data and changes in past statistics pose a series of problems when analyzing the economy.
It adds to the determination of underlying parameters such as the neutral interest rate, the impact of rising “real” rates on markets and the degree to which credit tightening ends up curbing corporate borrowing and spending.
All this “supports caution in determining the level of further monetary policy tightening that may be appropriate” according to the minutes, noting that “participants generally think” that the risks are becoming more bidirectional.
While global commodity markets and a strong housing market may lead to higher inflation, and tighter financial markets, the slowdown in global growth and the recent Labor strikes pose risks to economic growth and employment.
Although the public money authorities agree to that still “to do”With key measures of inflation remaining above 3%, the minutes reflect greater concern about the risks of excessive rate hikes and slowing activity so much that it has caused companies to shed more workers.
Federal Reserve officials said the economy’s steady performance, despite aggressive rate hikes over the past 19 months, continues. unemployment is low even as inflation falls from highs recorded in mid-2022.
The debate now centers on whether prices will continue to fall without further rate hikes, or whether a slightly tighter monetary policy is needed.
This week, Fed officials, including some hawks like Governor Christopher Waller, cited rising Treasury yields, which could affect the cost of credit for businesses and households, as the force can further increase the central bank rate unnecessarily.
Since the September meeting, investors have discounted the possibility of another rate hike. They currently give only a 12% chance of a hike in the October 31-November 1 meeting and about 26% in the December 12-13 meeting, according to the CME Group’s FedWatch tool.
