Fed minutes to detail debate over endgame rate hikes

WASHINGTON, Feb 22 (Reuters) – Minutes of the Federal Reserve’s latest policy meeting are expected to detail on Wednesday the extent of the debate at the U.S. central bank over the degree of further interest rate hikes to slow the economy. inflation and cool an economy that has remained stronger than expected despite monetary tightening.

January 31-February. The first meeting ended with the Fed raising its benchmark overnight interest rate by a quarter of a percentage point, a return to a more standard rate hike size after a year of hikes. 75 basis points and half a percentage point.

At a news conference after the meeting ended, Fed Chairman Jerome Powell said a return to lower rate hikes would allow for a more gradual search for a possible break point, and that officials spent the session “talking a bit about the way forward.” as the central bank nears what could be the end of its hiking cycle.

But this session also came ahead of the release of key data that showed unusually strong job gains in January and a less than expected slowdown in inflation – a trend that is likely to continue this week with Friday’s release of a report on how well the Fed’s favorite inflation index fared in January.

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The central bank uses the personal consumption expenditure price index to set its inflation target of 2%. Economists polled by Reuters estimate that the PCE excluding the more volatile food and energy components rose at an annual rate of 4.3% last month, a slight improvement from the 4.4% jump in December. But on a monthly basis, this measure of underlying inflation should actually have increased to 0.4% from 0.3% in the prior period.

“The news has just been that the U.S. economy is stronger than we previously thought…Our current risk is that inflation may not come down or pick up,” and require higher rate increases than expected, said the president of the St. Louis Fed. James Bullard told CNBC on Wednesday.

Bullard has yet to raise its own rate outlook due to recent data and still believes a policy rate of between 5.25% and 5.50% will be enough to keep inflation down this year.

Investors, however, reacted to recent data by reinforcing their own idea of ​​where the Fed might end up.

Most don’t see the Fed returning to bigger half-percentage-point increases, but they do see the central bank moving rates higher than expected and leaving them higher for longer as well – a change in sentiment. probably welcomed by Fed officials concerned that market prices had underestimated their resolve to bring inflation back to the 2% target.


The minutes, due for release at 2:00 p.m. EST (19:00 GMT), may show just how central the bank remains leaning towards hawkish policy, especially in a meeting that turned out to be the last of the former Fed Vice Chairman Lael Brainard. She was among the Fed officials most attuned to the risks facing the economy under tight monetary policy and the most detailed in sketching out why inflation could be slowing faster than expected.

Brainard, who left the Fed to lead President Joe Biden’s National Economic Council, anchored the more dovish side of a discussion among those who advise caution on further rate hikes because the economy may not have recovered. -not yet fully adjusted to what the Fed has been doing, and those who believe businesses and households are proving so resilient that they may need the restraint of even higher interest rates to keep inflation completely regresses.

While there was little disagreement last year over what the Fed should do as inflation hit a 40-year high, the central bank is now in a more two-sided debate “about how much the resilience of the economy so far reflects time lags on monetary tightening from a higher short-term neutral rate “needed to get businesses and households to slow spending, analysts wrote. ‘ISI Evercore in an analysis before the release of the minutes.

Although the minutes of the last policy meeting are particularly dated, given the employment and inflation data released since then, policymakers will update their views with new economic and interest rate projections. interest released after the end of the March 21-22 Fed meeting.

Reporting by Howard Schneider; Additional reporting by Lindsay Dunsmuir; Editing by Dan Burns and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

howard schneider

Thomson Reuters

Covers the US Federal Reserve, monetary policy and economics, graduated from the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, business reporter and local Washington Post staffer.

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