Washington, DC – Federal Reserve officials met earlier this month to discuss the state of inflation in the economy, realizing that it may take longer than expected for inflation to reach levels that would warrant a reduction in the key interest rate, which currently stands at a 23-year high.
The May 1 meeting minutes, released on Wednesday, revealed that officials had differing opinions on whether the current interest rate was effective in curbing inflation. There was uncertainty among officials regarding the extent to which the Fed’s rate policies were limiting price growth in the economy.
It was noted in the minutes that the impact of high interest rates may not be as significant as in the past. Many American homeowners took advantage of low mortgage rates during the pandemic by refinancing their mortgages, while large companies also refinanced debt at favorable rates, lessening the impact of the Fed’s 11 rate hikes over 2022 and 2023.
Speculation arose that the Fed might consider raising the benchmark rate in the near future, rather than cutting it, as some officials mentioned a willingness to do so if inflation were to accelerate.
Fed Chair Jerome Powell, however, expressed during a news conference following the meeting that it was unlikely for the Fed to resume raising its benchmark rate – a statement that briefly bolstered financial markets.
In a statement released after the meeting, Fed officials acknowledged that progress in reducing inflation had slowed in the first three months of the year. As a result, they decided to hold off on cutting the key rate until they had greater confidence that inflation was on track to return to their 2% target.
Powell remained optimistic about a further cooling of inflation in the upcoming months but noted that his confidence in that outlook had diminished due to recent data.
From a peak of 7.1% in 2022, inflation, as measured by the Fed’s preferred gauge, had been steadily decreasing throughout most of 2023. However, the gauge had been running faster than the central bank’s inflation target for the past three months, leading to concerns about the feasibility of a “soft landing.”
While a recent government inflation report showed a slight decrease in price pressures in April, Fed speakers emphasized the need for more positive inflation data to support a potential rate cut in the future.
Key Fed member Christopher Waller indicated that he would require several more months of favorable inflation data before supporting rate reductions, suggesting that the Fed would likely not consider rate cuts until at least September.