FOMC Meeting Minutes: Fed To Remain Hawkish in Taming Inflation — What Does That Mean for Interest Rates?

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The Federal Reserve released the minutes of its Sept. 20-21 Federal Open Market Committee meeting, suggesting it will remain hawkish for the next several months. The minutes noted that inflation shows “little sign so far of abating,” and with supply and demand imbalances in the economy continuing, participants had raised their assessment of the path of the federal funds rate that would likely be needed to achieve the committee’s goals.

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According to the Oct. 12 minutes, participants judged that “the pace and extent of policy rate increases would continue to depend on the implications of incoming information for the outlook for economic activity and inflation and on risks to the outlook.”

“Despite five rate hikes this year in response to 40-year highs in inflation readings, the minutes from the Fed’s recent meeting suggests that they will remain hawkish until CPI [Consumer Price Index] readings drastically decrease toward their long-term inflation target of 2%,” Ben Vaske, investment research analyst at Orion Advisor Solutions, told GOBankingRates. “This aggressive stance suggests that a recession could be more likely, as the Fed is more concerned with doing too little, rather than too much, to fight inflation.” 

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Several participants noted, however, that, “particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.”

They also said that as the stance of monetary policy tightened further, “it would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.” 

As was widely anticipated at the September meeting, the Fed raised its interest rates by three-quarters of a percentage point, the third consecutive such hike. The unanimous decision came amid four-decade high inflation, fears of a looming recession and Russia’s war against Ukraine, which is “creating additional upward pressure on inflation” and weighing on global economic activity, according to the September statement. 

The minutes also show that considering the “broad-based and unacceptably high level of inflation,” many participants emphasized that “the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.”

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Several participants underlined the need to maintain a restrictive stance for as long as necessary, with a couple of these participants stressing that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation. 

“The Fed minutes didn’t contain a lot of new information, but they did reiterate their intention to [err] on the side of doing too much rather than too little, so the market should expect 75 bps next month and potentially another 50-75 bps in December,” Chris Zaccarelli, chief investment officer, Independent Advisor Alliance, told GOBankingRates. 

Zaccarelli added that there was some implication that members were growing a little uneasy with the chances that they would do significant harm to the economy in the name of taming inflation– specifically, that their policy needed to be “calibrated.”

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“Ultimately, we expect the Fed to remain hawkish regardless of what happens with the CPI numbers tomorrow; however, if inflation does appear to be cooling, then it’s possible that they only raise 25 or 50 bps in December versus something higher in the event that inflation doesn’t appear to be slowing down,” he said. 

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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