Most Fed officials supported slower rate hikes at the last meeting

By PAUL WISEMAN, AP business writer

WASHINGTON (AP) – Most Federal Reserve officials at their last meeting pledged to reduce the scope of their interest rate hikes “soon” — just before raising interest rates by a sizeable three-quarters point for a fourth straight month.

Central bank policymakers saw “very little sign of inflationary pressures easing”. Still, a “substantial majority” of officials believed that smaller rate hikes “would likely be appropriate soon,” according to minutes of their Nov. 1-2 meeting released on Wednesday.

The Fed is widely expected to raise its short-term interest rate, which affects much consumer and corporate credit, by half a point at its next meeting in mid-December.

“Slowing the pace would give the (Fed) an opportunity to assess the economic landscape and see where it is,” wrote Jennifer Lee, senior economist at BMO Capital Markets, in a research note. “Without a wild inflation report ahead of the next meeting (half a percentage point hike), December sounds very reasonable. But the Fed is clearly not done yet.”

Rising wages, the result of a strong labor market combined with weak productivity growth, are “inconsistent” with the Fed’s ability to meet its 2% target for annual inflation, policymakers concluded, according to the minutes.

At that meeting, Fed officials also expressed uncertainty about how long it might be before their rate hikes slowed the economy enough to tame inflation. Chairman Jerome Powell stressed at a press conference after the meeting that the Fed is not even close to declaring victory in its fight against high inflation.

Still, some policymakers expressed hope that falling commodity prices and removing supply chain bottlenecks “should help lower inflation over the medium term.” In fact, earlier this month the government reported that price increases moderated in October, signaling that inflationary pressures may be starting to ease. Consumer inflation hit 7.7% yoy and 0.4% compared to September. The year-over-year increase, while painfully high by any measure, was the smallest increase since January.

Wednesday’s minutes revealed that Fed officials believed ongoing rate hikes were “essential” in keeping Americans from expecting unlimited inflation. When people expect high inflation to continue, they act in ways that allow those expectations to self-fulfill—for example, by demanding higher wages and spending briskly before prices can rise any further.

Fed officials noted that even as the economy slowed, most employers resisted layoffs, apparently “interested” in retaining workers after a year and a half of severe labor shortages. The US unemployment rate is 3.7%, just above a half-century low.