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Federal Reserve Officials Observed

As recently as three weeks ago, most officials from the Federal Reserve stated that they still considered high inflation to be an ongoing threat that could warrant additional interest rate increases. This information was revealed in the minutes of the central bank’s meeting on July 25-26, which were made public on Wednesday.

During the same meeting, the officials acknowledged “several tentative signs that inflation pressures could be subsiding.” This mixed perspective mirrored Chair Jerome Powell’s uncertain stance on future rate hikes during a news conference following the meeting.

According to the minutes, the policymakers at the Fed also believed that although there were indications of progress in regards to inflation, it was still significantly above their target of 2%. They expressed the need to analyze more data to gain confidence that inflation pressures were indeed diminishing and heading towards their target level.

However, some analysts on Wall Street are predicting that the Fed may halt further rate hikes for this year and begin reducing rates in 2024, citing the consistent downward trend in inflation throughout the year. It is important to note that the Fed has consistently stated its desire for inflation to return to the 2% range before easing its campaign of rate hikes.

“The primary takeaway from the recently released minutes from the July FOMC meeting was that central bankers did not rule out additional rate hikes if inflationary pressures rise,” said Sam Millette, fixed income strategist for Commonwealth Financial Network, in an email.

Will the Fed raise rates in September?

During the July meeting, the Fed decided to raise its benchmark rate for the 11th time in 17 months as part of its ongoing efforts to control inflation. However, in the statement issued after the meeting, little guidance was provided on when or if the rates would be raised again.

Goldman Sachs economists recently predicted that the Fed would not raise rates in September and may actually start reducing rates by the middle of next year.

Since the previous Fed meeting, more data has supported the notion of a “soft landing,” in which the economy gradually slows down, leading to a reduction in inflation towards the central bank’s target of 2%, without plunging into a severe recession. The Fed has raised its key rate to a 22-year high of approximately 5.4%.

According to the latest readings on “core” prices, a closely monitored category that excludes volatile food and energy costs, inflation has further eased. Core prices increased by 4.7% in July compared to the previous year, representing the smallest increase since October 2021. Fed officials rely on core prices as they believe it provides a more accurate measure of underlying inflation.

Overall consumer prices rose by 3.2% in July compared to the previous year, driven by higher costs of gas and food. However, this is significantly lower than the peak inflation rate of 9.1% in June 2022.

Despite the progress made, the sharp increase in unemployment that many economists expected to follow the Fed’s series of rapid interest rate hikes, the fastest in four decades, has not materialized.

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