At the last Federal Reserve meeting, most participants agreed that increases of 50 basis points would likely be implemented in the coming months.
As in previous meetings, participants again agreed that the economic outlook was highly uncertain.
Developments associated with Russia’s invasion of Ukraine and COVID-related lockdowns in China have posed heightened risks to economies around the world, meeting minutes revealed.
He said: “In light of the high degree of uncertainty surrounding the economic outlook, participants felt that risk management considerations would be important in deliberations over time regarding the appropriate policy direction.”
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“Many participants felt that accelerating the removal of political accommodation would leave the Committee well placed later this year to assess the effects of the policy tightening and the extent to which economic developments warranted policy adjustments.”
But, in an update on the stability of the US financial system, participants judged that despite rising interest rates, Russia’s invasion of Ukraine and supply chain disruptions, markets had shown resilience.
Heightened uncertainties and continued volatility were determined to have reduced risk appetite in financial markets, easing price pressures. The Committee’s previous communications were also seen as helpful in shifting market expectations towards its assessment of tighter financial conditions.
However, valuations for many assets remained high.
“Inflation remained elevated, reflecting persistent supply and demand imbalances, rising energy prices and broader price pressures,” the Fed said.
Suggesting the Committee’s hyper-focus on inflation, the minutes mention the term 66 times.
The minutes stated: “The Committee is very attentive to the risks of inflation. The Committee seeks to achieve a maximum employment and inflation rate of 2% in the long term.”
Moreover, in an unusual step, Federal Reserve Chairman Jerome Powell also addressed the United States directly on the central banks’ plan to control inflation during a press conference after the meeting.
GSFM investment strategist Stephen Miller said Powell’s comments reinforced the Federal Reserve’s aggressive stance and volatility would ensue.
Miller said, “The Fed is engaged in the trickiest of the trickiest acts of central banking: charting a course between bringing inflation back to target without tipping the economy into recession.”
“Of course, a fortuitous mix of productivity gains, unblocked supply chains, increased labor force participation, resilient financial markets, and deft central bank enforcement of the Cable Act could enable the U.S. economy to meet the challenge ahead.”
Miller doubted central banks’ attempts to do so, as history was filled with failures in the face of persistently high inflation.
“The problem is compounded when it begins long after a period of historically high levels of monetary stimulus and where ‘aggressive’ counts as a return of the real policy rate to close to zero,” he said.