Fed voiced determination at last meeting to curb inflation
WASHINGTON (AP) — Federal Reserve officials at their last meeting stressed their commitment to taming “unacceptably high’’ inflation before announcing that they were raising their benchmark interest rate by a substantial three-quarters of a point for a third straight time and signaling more large rate hikes ahead.
In minutes from their Sept. 20-21 meeting released Wednesday, the Fed policymakers judged that a “softening of the labor market’’ — likely including higher unemployment — would be needed to curb the nation’s intense inflationary pressures. They noted that hiring remained “robust,” which itself fuels high inflation as wages rise sharply.
The minutes show that the policymakers expressed concern during their meeting that the U.S. economy might be vulnerable to damage from a sputtering Chinese economy and a slowdown in Europe arising from Russia’s war against Ukraine.
Beginning in March this year, the Fed has raised rates five times in an aggressive pace that has boosted its key short-term rate to a range of 3% to 3.25%, the highest level since 2008. The Fed’s benchmark rate, in turn, influences many consumer and business loan rates. The central bank is set to raise rates again at its meetings in November and December, beginning with another large three-quarter-point hike early next month.
Chair Jerome Powell has warned that wringing high inflation out of the economy will “bring some pain,” with higher unemployment and, many fear, a recession by next year.
Even as the Fed’s credit tightening has sharply raised borrowing costs across the economy, hiring has remained surprisingly resilient. Unemployment dropped last month to 3.5%, matching a half-century low. And employers added 263,000 jobs in September, down from 315,000 in August but still reflective of a job market that is hot enough to keep putting upward pressure on wages and feed into higher prices.
The Fed was slow to respond after inflation began accelerating in the spring 2021. At first, Powell and some economists characterized surging consumer prices as mainly a temporary consequence of pandemic-related supply chain bottlenecks that would soon fade.
They were wrong. Prices kept accelerating and earlier this year recorded the fastest year-over-year growth in four decades before easing slightly.
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