WASHINGTON—Newly released minutes from the Federal Open Market Committee’s June meeting reveal participants agreed the economic outlook warranted moving to a restrictive stance of policy—raising rates—and further recognized the possibility that an even more rate increases may be needed if inflation can’t be tamed.
Moreover, members of the FOMC indicated they believe an increase of 50 or 75 basis points would likely be appropriate when it next meets in July.
As CUToday.info reported, during its June meeting, the FOMC announced its largest rate hike since 1994, raising the federal funds target rate by 75-basis points to a range of 1.5 to 1.75%, which was ahead of what many had forecast.
Imbalance Discussed
According to the minutes, participants discussed how the imbalance between supply and demand across a wide range of product markets was contributing to upward pressure on inflation and many participants raised concerns that longer-run inflation expectations could be beginning to drift up to levels consistent with the 2% objective, noted NAFCU in its analysis of the minutes.
The FOMC members’ concerns are that if inflation expectations were to become unanchored, it would be costlier to bring inflation back down to the FOMC’s objective.
“The FOMC is clearly fearful of a scenario where persistent high inflation raises inflation expectations,” said NAFCU Chief Economist and Vice President of Research Curt Long. “The median committee member expects the fed funds rate target to increase to 3.4% by the end of the year. Judging by the minutes, it would take a major deflationary impulse for the committee to reconsider the present course for interest rates at any point in 2022.”
Other Minute by Minute Notes
Other key findings from the minutes, as noted by NAFCU:
- Participants of the meeting indicated that overall economic activity appeared to have picked up after edging down in the first quarter
- With respect to the household sector, participants indicated that consumption spending had remained robust, in part reflecting strong balance sheets in the household sector and a tight labor market
- Participants generally expected higher mortgage interest rates to contribute to further declines in home sales, and a couple of participants noted that housing activity in their districts had begun to slow noticeably
- With respect to the business sector, participants observed that their contacts generally reported that sales remained strong, although some contacts indicated that sales had begun to slow and that they had become less optimistic about the outlook
- The ability of firms to meet demand continued to be limited by labor shortages and supply chain bottlenecks
The FOMC is scheduled to next meet July 26-27.
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