Fed officials expect inflation pressures to persist in near term

In this file photo taken on May 4, 2022, the Marriner S. Eccles Federal Reserve building is seen in Washington, DC.
(JIM WATSON / AFP)

WASHINGTON – US Federal Reserve officials expect inflation pressures to persist in the near term, believing the central bank needs to move to, and then maintain, a more restrictive policy stance to meet its goals.

Recent inflation data generally had come in above expectations and correspondingly, inflation was declining more slowly than anticipated, showed the minutes of the Federal Open Market Committee's meeting on Sep 20-21, released Wednesday

Recent inflation data generally had come in above expectations and correspondingly, inflation was declining more slowly than anticipated, showed the minutes of the Federal Open Market Committee's meeting on Sep 20-21, released Wednesday.

"Labor market tightness and the resulting upward pressure on nominal wages, continuing supply chain disruptions, and the persistent nature of increases in services prices, particularly shelter prices," have contributed to persistent inflation pressures, the minutes noted.

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The number of job openings in the United States fell by 6.2 percent to 10.1 million by the end of August, the Labor Department reported last week. With 5.8 million unemployed, there were 1.7 job openings for every unemployed person, indicating continued labor market tightness.

Participants of the Sep 20-21 meeting generally anticipated the US economy would grow at "a below-trend pace" in this and the coming few years, with the labor market becoming less tight, as monetary policy assumed a restrictive stance and global headwinds persisted.

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The Fed's latest quarterly economic projections showed that Fed officials' median projection of GDP growth this year is 0.2 percent, a further downgrade from the 1.7 percent projected in June, while their median projection of unemployment is 4.4 percent by the end of 2023, an upward revision of 0.5 percentage point from June.

According to the minutes, a few participants said the unemployment rate could rise "considerably." Some participants noted rising labor tensions, a new round of global energy price increases, further disruptions in supply chains, and a larger-than-expected pass-through of wage increases into price hikes, if all materialized, "could compound an already challenging inflation problem."

As to tackle the inflation problem, "participants remarked that purposefully moving to a restrictive policy stance in the near term was consistent with risk-management considerations," the minutes said.

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Many participants emphasized that "the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action," according to the minutes.

As of Wednesday night, the Chicago Mercantile Exchange Group's FedWatch Tool showed the probability of a 75-basis-point rate hike at the Fed's next policy meeting in early November was nearly 80 percent.