Hawkish Language in the April 30-May 01 FOMC Minutes
May 22, 2024
While conceding that risks to the Fed’s twin mandates of 2% sustained inflation and maximum employment within the constraint of price stability, the minutes from the last Federal Open Market Committee meeting, which were released this afternoon, also stresses very high uncertainty surrounding their baseline forecast.
There is some attempt to explain why inflation may not be falling this year as quickly as they had expected, a conclusion that current policy restrictiveness will need to be maintained longer than thought, and resignation that the eventual decline of rates may have to be more prolonged than previously thought. The minutes even warb that a higher interest rate could become warranted by future data and express a willingness by several of the members stating for the written record that should such a scenario present itself, they will not hesitate to tighten. This discussion, which reads more hawkishly than Chairman Powell’s personal view that a rate hike seems avoidable, can be found in the following passage:
Participants remained highly attentive to inflation risks and noted the uncertainty associated with the economic outlook. Although monetary policy was seen as restrictive, many participants commented on their uncertainty about the degree
of restrictiveness. These participants saw this uncertainty as coming from the possibility that high interest rates may be having smaller effects than in the past, that longer-run equilibrium interest rates may be higher than previously thought, or that the level of potential output may be lower than estimated. Participants assessed, however, that monetary policy remained well positioned to respond to evolving economic conditions and risks to the outlook. Participants discussed maintaining the current restrictive policy stance for longer should inflation not show signs of moving sustainably toward 2 percent or reducing policy restraint in the event of an unexpected weakening in labor market conditions. Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.
Staff forecasts were not updated at the last FOMC meeting but will be done at the next one. More than usual market attention will be paid to the individual views regarding longer run tendencies in the key variables that are projected.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: FOMC Minutes
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