The theme of recent remarks by Fed officials was reaffirmed in the central bank’s January meeting minutes released on Wednesday. Until authorities can prove that the Fed funds rate has been maintained high enough to overcome the sharp rise in the cost of living, the Fed’s policy committee does not intend to lower rates from its current 23-year high.
According to minutes from the most recent meeting of the Federal Reserve, most policymakers are still more concerned about the possibility of lowering interest rates too fast than raising them too high and hurting the economy.
The minutes said that "most participants emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent and noted the risks of moving too quickly to ease the stance of policy."
"In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle," the minutes stated. However, "Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent."
According to the minutes, authorities "remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices." "Even though the second half of last year's inflation data showed a considerable decline, participants noted that they would be closely examining new data to determine whether inflation was steadily declining towards 2 percent."
Separate data on consumer and producer prices since the Jan. 30-31 meeting have confirmed the prudent approach, with inflation running hotter than anticipated and still well above the Fed's 2% 12-month objective. The labor market in the United States has been increasing, creating 353,000 nonfarm payroll jobs in January. The Atlanta Fed estimates that first-quarter economic data thus far points to 2.9% GDP growth.
The consumer price index rose 3.1% on a 12-month basis in January – 3.9% when excluding food and energy, the latter of which posted a significant decline during the month. So-called sticky CPI, which weighs toward housing and other prices that don't fluctuate as much, rose 4.6%, according to the Atlanta Fed. Producer prices increased 0.3% monthly, well above Wall Street expectations.
Traders in the Fed funds market were positioning for a March rate cut. However, these expectations have now been pushed to June. The expected number of cuts for the entire year had been reduced to four from six. FOMC officials projected three in December.
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