Fed Officials Discussed Raising Rates Sooner and Faster, Minutes Show

on Jan6
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The minutes showed that both considerations weighed on policymakers’ minds as they considered their future actions, but as the labor market has healed swiftly, they have begun turning their attention decisively toward the threat of too-high inflation. The Fed is tasked with two main jobs, fostering maximum employment and keeping prices relatively stable.

“Several participants remarked that they viewed labor market conditions as already largely consistent with maximum employment,” the minutes said. At the same time, some officials noted that it might be smart to raise rates even if the job market was not fully recovered if inflation showed signs of jumping out of control.

“It does cement that they’re definitely pivoting strongly toward rate hikes,” Michael Feroli, chief U.S. economist at J.P. Morgan, said after the release. Although it’s hard to pin down the timing, he said, “they are moving toward putting policy in a more restrictive setting.”

There’s a reason for the Fed’s active stance. Inflation has been alarmingly high for much longer than central bankers expected. Last year, policymakers expected prices to pop temporarily as pandemic-affected sectors like airlines and restaurants recovered, then return to normal.

Instead, prices through November climbed the most since 1982, and monthly gains remained brisk. Factory shutdowns and tangled shipping lines have made it hard for suppliers to catch up with booming consumer demand for goods, forcing costs up. Price gains have also begun to spread: Rents are increasing more quickly, which could make high inflation more persistent.

Inflation is broadly expected to fade this spring, as prices are measured against relatively high levels from a year earlier. Prices may also decelerate as producers catch up with demand, officials hope. But policymakers lack certainty about when that will happen.

Officials projected in their December economic estimates that inflation will ease to 2.6 percent by the end of 2022, but estimates ranged from 2 percent to 3.2 percent. To put those numbers into context, the Fed’s preferred price index climbed 5.7 percent through November, and the central bank targets 2 percent annual gains on average over time.

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