A number of Fed policymakers are willing to consider raising interest rates despite higher gas prices threaten to worsen inflation, minutes from from the central bank’s March 17-18 meeting show.
The minutes, released Wednesday, showed that “some” of the Federal Reserve’s 19 policymakers on its rate-setting committee supported changing their post-meeting statement to reflect the possibility for a future rate increase, the AP reported. That’s an increase from “several” in January, the AP said.
The central bank does not reveal precise numbers of how many officials supported each position, but in Fed lingo, “some” is considered more than “several.” And “many” of the officials pointed to the risk that higher oil and gas prices could keep inflation elevated for “longer than expected, which could call for rate increases” to drive inflation back down, the AP said.
CNBC reported that policymakers said they would need to remain “nimble” as they weighed the impact the war had on inflation, which continued to hold above the Fed’s target, and hiring, which has been mostly flat over the past year.
Still One Cut Predicted
“Many participants judged that, in time, it would likely become appropriate to lower the target range for the federal funds rate if inflation were to decline in line with their expectations,” the minutes said.
CNBC reported that the consensus of policymakers anticipated one cut this year, unchanged from the last update in December.
The minutes summary noted caution over “a further softening in labor market conditions, which could warrant additional rate cuts, as substantially higher oil prices could reduce households’ purchasing power, tighten financial conditions, and reduce growth abroad.“
The rate-setting Federal Open Market Committee ultimately voted 11-1 to keep the overnight borrowing rate targeted in a range between 3.5%-3.75%.
The board’s consensus was to keep rates steady as they watched conditions unfold, with officials also expressing concern that the Middle East hostilities could result in sustained inflation that could require rate hikes.
“Most participants commented that it was too early to know how developments in the Middle East would affect the U.S. economy and judged it prudent to continue to monitor the situation and assess the implications for the appropriate stance of monetary policy,” the minutes said.
Fed Chair Jerome Powell said in a recent public appearance that raising rates now to stave off an inflation increase could have negative longer-term effects given the lagged impact of Fed rate moves.
Labor Market Concerns
Fed officials also expressed concern about the labor market, which has been creating enough jobs to keep the unemployment rate steady. But, job growth has come almost exclusively from healthcare-related sectors, raising concerns about stability and potential for growth.
“The vast majority of participants judged that risks to the employment side of the mandate were skewed to the downside,” the minutes said. “In particular, many participants cautioned that, in the current situation of low rates of net job creation, labor market conditions appeared vulnerable to adverse shocks.“
On Monday, the head of the Federal Reserve Bank of Cleveland said in an interview that she prefers for the central bank to hold its benchmark interest rate unchanged “for quite some time,” but that a rate hike might be possible.
Beth Hammack said in an interview with the Associated Press that an interest rate hike could be appropriate if inflation remains persistently above the central bank’s 2% target, the latest sign that some policymakers are moving away from a bias toward reducing borrowing costs.
