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FOMC meeting-expect a big debate

2022.11.23 07:20



FOMC meeting-expect a big debate

Budrigannews.com – The Federal Reserve switched this month to a more nuanced approach, which was viewed as a compromise between officials who were most concerned about high inflation and others who were concerned that additional significant increases in borrowing costs might wreak havoc on the economy or put pressure on key markets. This change came after the central bank went into overdrive earlier this year to raise interest rates.

The U.S. central bank is ending its push to “front-load” rate increases and is beginning to feel the way in smaller steps to an eventual stopping point. The minutes of the Nov. 1-2 policy meeting, which are scheduled to be released later on Wednesday, may show just how deep any emerging disagreement has begun to run.

The Fed’s policy statement on November 2 attempted to fill in any gaps by promising “ongoing increases” in interest rates until they were “sufficiently restrictive” to control inflation. It also stated that the size of the upcoming hikes would account for “the cumulative tightening” done up until that point and that the impact of those increases might not be felt for some time.

It’s not clear:how much higher Fed officials think they need to raise rates and how much more people are worried about “overshooting” and hurting the economy more than it takes to control inflation.

Analysts at Citi wrote on Sunday that the minutes “might show some building differences between those officials that want to take a more wait-and-see approach and those… who continue to present a more definitive view that financial conditions will need to tighten further.” These differences “might show some building differences between those officials”

Even traditionally dovish policymakers are still in favor of further rate increases at this point, and Fed Chair Jerome Powell stated that it is still more risky to fail to address the worst inflation outbreak since the 1980s than it is to raise rates too high.

In a press conference following the November policy meeting, Powell stated, “If we were to over-tighten, we could then use our tools strongly to support the economy. However, if we don’t get inflation under control because we don’t tighten enough, now we’re in a situation where inflation will become entrenched and the costs, the employment costs in particular, will be much higher potentially.”We want to make sure, from a risk management perspective, that we don’t make the mistake of either not tightening enough or too soon.”

However, policymakers have indicated that they are prepared to slow down from the fastest pace of central bank tightening since the early 1980s, with Fed rate increases totaling 3.75 percentage points since March, including moves of three-quarters of a percentage point at the last four meetings.

A number of Fed officials have stated that they are comfortable with a half-percentage-point increase at the meeting on December 13 and 14 despite recent government data showing slower-than-expected inflation. This expectation is reflected in the current market pricing for contracts that are tied to the policy rate of the central bank.

The minutes, which are scheduled to be released at 2 p.m. EST (1900 GMT), may help demonstrate how widespread that sentiment is and how close the members of the Federal Open Market Committee, which decides policy, may be to completely suspending rate increases.

At the conclusion of the meeting in three weeks, officials will release new quarterly economic projections that include their outlook for unemployment and inflation next year as well as the appropriate course of monetary policy. This will provide a more precise reading of that.

FOMC meeting-expect a big debate

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