Dive Brief:
- All 19 Federal Reserve officials backed the decision late last month to increase the main interest rate by a quarter point, noting stability in the economy and labor market while flagging an imperative to reduce inflation to the Fed’s 2% goal, according to meeting minutes released Wednesday.
- The Sept. 28 decision, unanimously approved by the 12 policymakers on the Federal Open Market Committee, also won support from the seven regional bank presidents who rotate on to the FOMC but are not currently on the committee, according to the minutes.
- “Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end,” according to the minutes. “Participants emphasized, however, that they approached each meeting with an open mind and decisions at future meetings would depend on incoming information.”
Dive Insight:
Two high-ranked policymakers, Fed Vice Chair Philip Jefferson and New York Fed President John Williams, have indicated since the Sept. 28 FOMC decision that they are in no hurry to increase borrowing costs, a sentiment bolstered Friday by a report of weak job gains.
The U.S. in September created just 29,000 jobs — less than forecast — and a total of 60,000 fewer jobs in July and August combined than earlier reported, the Labor Department said. The unemployment rate edged up to 4.2%, 0.1 percentage point higher than in August.
Low hiring and the softer tone on fighting inflation from Jefferson and Williams prompted traders in interest rate futures to reduce the odds that the Fed will raise the main interest rate this month to 17.2% from 37.6% a week ago, according to CME Group’s FedWatch tool.
The central bank seeks to hold inflation at 2% but has failed for more than five years to reach that goal. While most Fed officials last month forecast one more hike in the main rate this year, a few indicated they anticipate two more increases.
Fed officials during the September FOMC meeting voiced concern about rising inflation expectations, according to the minutes.
“Some participants expressed concerns that, after more than five years of inflation above 2%, elevated inflation rates could begin to affect inflation expectations and wage- and price-setting decisions,” according to the minutes.
Central bank officials closely track expectations for inflation, believing such sentiments can become self-fulfilling. Consequently, rising expectations among households that price pressures will increase argue for tighter monetary policy.
Median inflation expectations among consumers last month increased by 0.3 percentage point to 3.9% for 12 months in the future and by 0.1 percentage point to 3.3% for the three-year-ahead horizon, the New York Fed said Wednesday.
Expectations for inflation in five years were unchanged at 3%, the New York Fed said, citing a survey.
“Some participants remarked that a higher policy rate would diminish the risk of persistently elevated inflation un-anchoring inflation expectations and becoming further entrenched,” according to the FOMC minutes.
Unlike Jefferson and Williams, Dallas Fed President Lori Logan recently voiced impatience about the persistence of inflation.
“Strong growth and resilient consumer spending are signs monetary policy is not restrictive,” she said on Oct. 1, noting that a survey by the Dallas Fed found that manufacturing output last month “accelerated sharply.”
Logan was one of three policymakers who dissented in July against a decision to hold the federal funds rate steady, favoring a quarter-point increase instead.
“Without any policy restriction, inflation will likely continue its above-target trend,” she said in a speech. “Policy therefore needs to become restrictive.
“At minimum, a few additional increases in the target range would undo the FOMC’s risk management cuts from last fall,” she said.
