Sign up now for FREE unlimited access to Reuters.com Register WASHINGTON, Aug 17 (Reuters) – Federal Reserve officials saw “little evidence” late last month that U.S. inflationary pressures were subsiding and were forced to force the economy to slow as much as needed to control rising prices, according to with minutes of their July 26-27 policy meeting. While not explicitly hinting at a specific pace of upcoming rate hikes, starting at the Sept. 20-21 meeting, minutes released Wednesday showed policymakers are committed to raising rates as high as needed to bring inflation under control and that they would have less spending and lower overall growth for that to happen. Since the July meeting, Fed officials noted that while some parts of the economy, notably housing, had begun to slow under the weight of tighter credit conditions, the labor market remained strong and unemployment was at near-record lows. Sign up now for FREE unlimited access to Reuters.com Register On the metric that mattered most, however, Fed officials at least as of late July had made little progress. “Participants agreed that there was little evidence to date that inflationary pressures were abating,” the minutes said. While some reduction in inflation may come through improving global supply chains or falling fuel and other commodity prices, some of the heavy lifting will also have to come by imposing higher borrowing costs on households and businesses. “Participants emphasized that a slowdown in aggregate demand would play an important role in reducing inflationary pressures,” the minutes said. The pace of future hikes will depend, the minutes said, on incoming economic data, as well as the Fed’s estimates of how the economy will adjust to the higher interest rates already approved. Some participants said they believed interest rates would need to reach a “fairly restrictive level” and remain there for “some time” in order to control inflation, which is at a four-decade high. In a glimpse of the emerging debate at the central bank, “many” panelists also noted the risk that the Fed “could tighten policy stance more than necessary to restore price stability,” which they said did sensitivity to incoming data. even more important. [nL1N2ZS1FQ] Following the release of the minutes, futures traders linked to the Fed’s policy rate saw a half-percentage-point rate hike as more likely in September, with Fed Funds futures prices reflecting just a 40% chance an increase of 75 basis points.
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The Fed has raised its key overnight rate by 225 basis points this year to a target range of 2.25% to 2.50%. The central bank is widely expected to raise interest rates next month by either 50 or 75 basis points. In order for the Fed to limit its rate hikes, inflation reports due out before the next meeting will likely have to confirm that the pace of price increases is slowing. Data from the Fed’s July policy meeting showed annual consumer inflation eased this month to 8.5% from 9.1% in June, which would argue for a smaller rate hike of 50 basis points next month . But other data released Wednesday showed why that remains an open question. Core US retail sales, which account for more of the consumer spending component of gross domestic product, were stronger than expected in July. That data, along with the shock value headline that inflation had breached the 10% mark in the UK, appeared to prompt investors in futures contracts linked to the Fed’s policy rate target to shift bets in favor of a interest rate of 75 basis points. hike next month. read more Meanwhile, the Chicago Fed’s gauge of credit, leverage and risk showed continued easing. This poses a dilemma for policymakers who believe that tighter economic conditions are needed to curb inflation. Employment and wage growth in July beat expectations, and a recent rally in the stock market may point to an economy still too hot for the Fed’s comfort. read more Sign up now for FREE unlimited access to Reuters.com Register Report by Howard Schneider. Edited by Paul Simao Our Standards: The Thomson Reuters Trust Principles. Howard Snyder Thomson Reuters He covers the Federal Reserve, monetary policy and the economy, a graduate of the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, financial reporter and on the local staff of the Washington Post.
