When will the Fed pivot on its interest rate hike?

Most Federal Reserve officials at their last meeting favored reducing the size of their rate hike “soon” — before raising their benchmark rate by a substantial three-quarters of a point for the fourth time in a row.

Central bank policymakers saw “little signs that inflationary pressures have eased.” However, a “large majority” of officials felt that small rate increases “may be appropriate soon,” according to the minutes of their meeting on Nov. 1-2 released Wednesday.

The Fed is widely expected to raise its key short-term rate, which affects many consumer and business loans, by a midpoint when it next meets in mid-December.

“The slowdown will give the (Fed) the ability to assess the economic landscape and see where they are,” Jennifer Lee, senior economist at BMO Capital Markets, wrote in a research report. “Short of some wild inflation reports before the next meeting, (half a percentage point increase) looks very reasonable in December. But the Fed is clearly not done yet.”

Increase in wages, result of a strong job marketcoupled with weak productivity growth, is “inconsistent” with the Fed’s ability to meet its 2% target for annual inflation, policymakers concluded, according to the minutes.

At that meeting, Fed officials also expressed uncertainty about how long it would take for them to raise rates to slow the economy enough to curb inflation. Chair Jerome Powell emphasized in a press conference after the meeting that the Fed is not even close to declaring victory in its fight to curb high inflation.

However, some of the policy makers expressed the hope that the drop in commodity prices and the reduction of bottlenecks in the supply chain “should contribute to lower inflation in the medium term.’ ‘ Indeed, the government reported earlier this month that price increases moderated in October in a sign that inflationary pressures may have begun to ease. Consumer inflation reached 7.7% from last year and 0.4% from September. The year-over-year increase, though painfully high by any standard, was the smallest increase since January.

Wednesday’s minutes revealed that Fed officials thought continued rate hikes would be “crucial” to prevent Americans from expecting inflation to continue indefinitely. When people expect more high inflation, they act in ways that make those expectations self-fulfilling – by, for example, demanding higher wages and stronger spending before prices rise. will be much faster.

Fed officials noticed that most employers resisted layoffs even as the economy slows, it is apparently “keen” to hold on to workers after a year and a half of severe labor shortages. The US unemployment rate is 3.7%more than a half-century low.

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