The Fed saw evidence of an economic slowdown at its last meeting

Fed Chairman Jerome Powell tells reporters at a news conference after the Federal Open Market Committee meeting to set interest rates on July 27, 2022. Photo of the Federal Reserve

Federal Reserve officials saw signs of a weakening U.S. economy at their last meeting but still saw inflation “unacceptably high,” before sharply cutting the benchmark rate by three-quarters. He raised the points and tried to curb the price spike.

In the minutes of the July 26-27 meeting released Wednesday, policymakers said they expected the economy to expand in the second half of 2022. Officials said the housing market, private consumption, business investment and factory production have slowed down after a strong expansion in 2021.

The slowdown in growth could “set the stage” for inflation to taper off to the central bank’s annual target of 2%, but remains “well above” that target, they said. did. But policymakers have made it clear that they intend to continue raising interest rates enough to slow the economy for the time being.

In both June and July, the Federal Reserve (Fed) tried to keep high inflation in check by raising the key rate by two unusually large three-quarter percentage point increases. At a meeting last month, policymakers said “at some point it may be appropriate to slow down the pace of policy rate increases.”

It remains unclear whether the Fed will announce another 3/4 point rate hike at its next meeting on September 20-21, or impose a more modest 0.5 point rate hike. The economy has shown mixed signs since his Fed meeting three weeks ago. An unexpected job increase, a deteriorating housing market, and a surprising drop in inflation. We’ll see another monthly employment report and another monthly report on consumer prices before policymakers meet again in September.

The minutes of the July meeting said, “While the Fed has suggested it will maintain its tightening track, some officials may eventually go too hard and eventually reverse course.” There are signs that there may be a need to be a little nervous,” said an international economist at financial firm ING.

Complicating the challenge for central banks, they were slow to react to inflation rising again in spring 2021 as the economy recovered from the recession caused by the 2020 pandemic. For months, Chairman Jerome Powell has characterized high inflation as “temporary,” but this is largely the result of supply chain backlogs that will quickly clear up the turmoil. to ease inflationary pressures. Instead, year-on-year inflation fell slightly last month after reaching 9.1% in June, his highest in 40 years.

So the Fed had to catch up with a series of sharp rate hikes. We raised his benchmark rate in March and raised it again in May, June and July. These moves raised the central bank’s key interest rate, which affects many consumer and corporate loans, from near zero to a range of 2.25% to 2.5%, the highest since 2018. .

Powell has said the Fed will do what it takes to keep inflation under control, and more rate hikes are expected. But many economists worry that the Fed will overdo the opposite by tightening credit too much, triggering a recession.

Concerns about a possible recession have so far been tempered by continued strength in the job market. Employers steadily added 528,000 jobs last month as the unemployment rate hit his 3.5%, matching the half-century low reached just before the pandemic hit in 2020.

In minutes released Wednesday, Fed policymakers acknowledged strength in the job market. But they also noted that employment tends to be a lagging indicator of economic health. And they pointed to signs that the job market may be cooling, including more Americans filing for unemployment benefits, fewer Americans leaving their jobs, and fewer job openings.

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