Federal Reserve Building on Constitution Avenue in Washington, US, March 27, 2019. REUTERS/Brendan McDermid/File Photo

WASHINGTON, Aug 17 (Reuters) – Federal Reserve officials saw “little evidence” late last month that inflation pressures in the United States were easing, and they hardened to force the economy to slow as much as necessary to control rising prices. Minutes of the policy meeting July 26-27.

While not explicitly hinting at a specific pace of upcoming interest rate increases, starting with the September 20-21 meeting, the minutes released on Wednesday showed policy makers committed to raising interest rates as high as possible to control inflation, and acknowledging that they will. To reduce spending and reduce overall growth to achieve this.

As of the July meeting, Fed officials noted that while some parts of the economy, notably housing, had begun to slow under the weight of tighter credit conditions, the labor market remained strong and unemployment was at a near record low.

On the most important metric, however, Fed officials at least through late July had posted little progress.

“Participants agreed that there is little evidence so far that inflationary pressures are abating,” the minutes said. Although some inflation cuts may come from improving global supply chains or lower prices for fuel and other goods, some of the heavy lifting must also come from imposing higher borrowing costs on households and businesses.

The minutes stated that “the participants emphasized that the slowdown in aggregate demand will play an important role in reducing inflationary pressures.”

The minutes said the pace of future hikes will depend on incoming economic data, as well as the Fed’s assessments of how the economy is adjusting to the higher rates already approved.

Some participants said they felt rates should reach a “restrictive enough level” and remain there “for some time” in order to control inflation, which is at its highest levels in four decades.

At a glimpse into the emerging central bank controversy, “many” of the participants also indicated a risk that the Fed “could tighten the policy stance too much to restore price stability,” a fact they said increases the sensitivity of the incoming data. Everything is more important. [nL1N2ZS1FQ]

Following the release of the minutes, futures traders tied to the Fed’s policy rate saw a likely half-percentage point rise in September, with Fed funds futures prices reflecting only a 40% chance of a 75 basis point increase. .

Incoming data

The Fed raised its policy rate by 225 points this year to the target range of 2.25% to 2.50%. The central bank is It is widely expected to raise interest rates next month 50 or 75 basis points.

For the Fed to limit its rate increases, inflation reports due before the next meeting will likely need confirmation that the pace of rate increases is declining.

Data since the Federal Reserve’s policy meeting in July has shown that annual consumer inflation eased that month to 8.5% from 9.1% in June, a fact that should signal a 50 basis point rate increase next month.

But other data released on Wednesday showed why that question remains open.

Core retail sales in the US, which closely aligns with the consumer spending component of GDP, were stronger than expected in July. This data, along with the shock value headline that inflation has crossed the 10% mark in the UK, seemed to prompt investors in futures contracts linked to the Fed’s policy target rate to shift bets in favor of the 75 basis point rate. Raise next month. Read more

Meanwhile, the Chicago Fed Credit and Leverage Index and Risk Metrics showed continued easing. This poses a dilemma for policymakers who feel that tighter fiscal conditions are needed to curb inflation.

Job and wage growth in July exceeded expectations, and the recent rally in the stock market may show that the economy is still too “hot” for the Fed to rest. Read more

(Howard Schneider reports). Edited by Paul Simao

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