Officials with the Federal Reserve are admitting to “significant progress” in the Fed’s ongoing battle with a stubborn U.S. inflation rate, which has dropped from is peak at nearly 10% two years ago to 3.1 for the past year ending Jan. 31.
But that doesn’t mean the Fed, which has raised interest rates 11 times since March 2022, is ready to start bringing rates back down.
In fact, some of them expressed concern that strong growth in spending and hiring could disrupt that progress.
In minutes from the January 30-31 meeting released Wednesday, most Fed officials also said they were worried about moving too fast to cut their benchmark interest rate before it was clear that inflation was sustainably returning to their 2% target. According to a report by The Associated Press, only “a couple” were worried about the opposite risk — that the Fed might keep rates too high for too long and cause the economy to significantly weaken or even slip into a recession.
Some officials “noted the risk that progress toward price stability could stall, particularly if aggregate demand strengthened” or the progress in improving supply chains faltered.
The sentiments expressed in Wednesday’s minutes, according to the AP report, help explain the Fed’s decision last month to signal that its policymakers would need more confidence that inflation was in check before cutting their key rate.
At the January meeting, the Fed decided to keep its key rate unchanged at about 5.4%, the highest level in 22 years.
At a news conference after the meeting, Chair Jerome Powell indicated that the Fed was not inclined to cut rates at its next meeting in March, as some investors and economists had hoped.
Several Fed officials have said in recent speeches that they were optimistic that inflation would continue to slow. In December, the officials projected that they would cut their rate three times this year, though they have said little about when such cuts could begin. Most economists expect the first reduction in May or June.
