Fed officials expected to make at least three big rate hikes in the coming months, worried about entrenched inflation.

Federal Reserve officials agreed in their latest meeting that the central bank needed to move “quickly” to bring down the fastest inflation rate of the past 40 years, with most attendees expecting up to three half hikes. percentage point of the interest rate in the months to come, the minutes of the Fed’s May meeting showed.

Policy makers noted that inflationary pressures were evident across a wide range of goods and services, causing Americans hardship by eroding their incomes and making it difficult for businesses to plan for the future. They said further supply chain disruptions due to the Russian invasion of Ukraine and pandemic blockades in China were threatening to push inflation higher.

Policymakers discussed the difficult task to tackle, with some officials pointing out “that persistently high inflation has increased the risk that long-term inflation expectations could break loose,” making it more difficult for the central bank to carry over. inflation at the 2% average annual increase that the Fed is aiming for.

The minutes also revealed an intense discussion that price pressures were starting to peak. Several officials noted that recent economic data suggested inflation may not get worse, although they said it was too early to tell if it had peaked. While saying that the labor market and consumer and business spending remained strong, they also expressed concern about the “downside” risks to the economy “and the likelihood of a sustained increase in energy and material prices. prime “.

The Fed raised rates by half a percentage point in May, the largest rate hike since 2000. Officials also detailed a plan to cut the central bank’s $ 9 trillion bond and signaled it would continue to make money. more expensive to borrow and spend until inflation is in check.

The Fed’s official rate is now set in a range of 0.75 to 1%.

Its decision to raise rates by half a percentage point in May initially supported Wall Street, which was concerned about a larger 0.75 hike, as some officials had suggested. Fed Chairman Jerome H. Powell, speaking at a press conference following the May meeting, seemed to rule out such a big move, saying it “was not something the committee is actively considering.” Investors took notice of that comment and the shares went up.

But in the following weeks, Mr. Powell made it clear that economic conditions remain incredibly uncertain and that the Fed may need to get bigger – or smaller – depending on how things evolve.

“If things turn out better than we expect, then we are ready to do less,” Powell said in an interview with “Marketplace,” a radio show distributed by American Public Media. “If they come worse than we expect, then we are ready to do more.”

However, as of the May meeting, “most attendees felt that increases of 50 basis points in the target range would likely be appropriate in the next two meetings,” according to the minutes.

Fed officials have made it clear that they will do whatever it takes to tame inflation, which it reached 8.5% in the United States last monththe fastest 12-month pace since 1981. The Fed’s preferred inflation measure, the Expenditure on personal consumption the price index is also rising, albeit not as rapidly, rising 6.6 percent in March compared to a year ago.

Although the Fed and many outside economists had expected prices to ease in 2021 as the economy reopened and the supply chains returned to more normal operations, this did not happen. Instead, prices continued to rise, expanding into categories including food, rent and gas. The current Covid blockade in China and the war in Ukraine have only exacerbated the price increases of goods, food and fuel.

But as rates hike, the Federal Reserve will be watching closely for signs that the trajectory of the economy is beginning to change. Data released on Tuesday showed new home sales down by 16.6 percent in April compared to the previous month, a sign that higher borrowing costs could cool the real estate market. So S&P Global polls on Tuesday indicated slowing business in utility companies in the United States and elsewhere; and continuing supply chain disruptions in global factories.

Data released after the Federal Reserve’s May meeting showed the annual pace at which prices are rising moderate a bit in April, but inflation rates are still uncomfortably fast. The general question for the Fed is whether policymakers will be able to slow the economy enough to moderate inflation without spurring a recession, which Powell and his colleagues have repeatedly acknowledged could be a challenge.

“There are huge events, geopolitical events going on around the world, which are going to play a very big role in the economy in the coming year,” Powell said last week. “So the question of whether we can perform a soft landing or not may actually be down to factors we don’t control.”

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