May 22, 2024 - Business

Many Fed officials uncertain high interest rates are doing enough to crush inflation

U.S. Fed chairman Jerome Powell speaks during a news conference.

Federal Reserve chairman Jerome Powell at a news conference after the FOMC meeting on May 1. (Photo: Chen Mengtong/China News Service/VCG via Getty Images

Some Federal Reserve officials questioned whether decades-high interest rates were sufficient to cool inflation, according to minutes released Wednesday from the central bank's policy meeting earlier this month.

Why it matters: Inflation eased considerably last year, but data in recent months showed progress has not continued into 2024 — a development that has muddled the outlook for how long interest rates might need to stay elevated.

The intrigue: Fed officials generally agreed that high interest rates were "restrictive," or putting downward pressure on economic activity, according to minutes from the April 30-May 1 policy meeting.

What they're saying: "Although monetary policy was seen as restrictive, many participants commented on their uncertainty about the degree of restrictiveness," according to the minutes.

  • Some of that uncertainty came down to whether high interest rates were "having smaller effects than in the past."

State of play: At the meeting, officials acknowledged "disappointing readings on inflation," and said it would take longer than previously thought to gain confidence that inflation was moving down to the Fed's 2% target, the minutes say.

  • They discussed keeping rates at current levels — between 5.25% and 5.5% — for a longer period of time if inflation proved more difficult to battle, unless there was an unexpected hit to the job market.
  • Notably, "various participants mentioned a willingness" to increase rates further if certain risks to inflation materialized, the minutes say.

What to watch: More recent data released since that meeting has shown slight progress on inflation. The Consumer Price Index eased in April, the first such slowing in 2024.

  • "If I were still a professor and had to assign a grade to this inflation report, it would be a C+ — far from failing but not stellar either," Fed governor Christopher Waller said earlier this week.
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