Fed wants more confidence that inflation is moving toward 2% target, meeting minutes indicate

Federal
Reserve
officials

at
their
March
meeting
expressed
concern
that

inflation
wasn’t
moving
lower
quickly
enough,
though
they
still
expected
to
cut
interest
rates
at
some
point
this
year.

At
a
meeting
in
which
the
Federal
Open
Market
Committee
again
voted
to
hold
short-term
borrowing
rates
steady,
policymakers
also
showed
misgivings
that
inflation,
while
easing,
wasn’t
doing
so
in
a
convincing
enough
fashion.
The
Fed
currently
targets
its
benchmark
rate
between
5.25%-5.5%

As
such,
FOMC
members
voted
to
keep
language
in
the
post-meeting
statement
that
they
wouldn’t
be
cutting
rates
until
they “gained
greater
confidence”
that
inflation
was
on
a
steady
path
back
to
the
central
bank’s
2%
annual
target.

“Participants
generally
noted
their
uncertainty
about
the
persistence
of
high
inflation
and
expressed the
view
that
recent
data
had
not
increased
their
confidence
that
inflation
was
moving
sustainably
down
to
2
percent,”
the
minutes
said.

In
what
apparently
was
a
lengthy
discussion
about
inflation
at
the
meeting,
officials
said
geopolitical
turmoil
and
rising
energy
prices
remain
risks
that
could
push
inflation
higher.
They
also
cited
the
potential
that
looser
policy
could
add
to
price
pressures.

On
the
downside,
they
cited
a
more
balanced
labor
market,
enhanced
technology
along
with
economic
weakness
in
China
and
a
deteriorating
commercial
real
estate
market.

They
also
discussed
higher-than-expected
inflation
readings
in
January
and
February.
Chair

Jerome
Powell
said
it’s
possible
the
two
months’
readings
were
caused
by
seasonal
issues,
though
he
added
it’s
hard
to
tell
at
this
point.
There
were
members
at
the
meeting
who
disagreed.

“Some
participants
noted
that
the
recent
increases
in
inflation
had
been
relatively
broad
based
and
therefore
should
not
be
discounted
as
merely
statistical
aberrations,”
the
minutes
stated.

That
part
of
the
discussion
was
partly
relevant
considering
the
release
came
the
same
day
that
the
Fed

received
more
bad
news
on
inflation.

The

consumer
price
index,
a
popular
inflation
gauge
though
not
the
one
the
Fed
most
closely
focuses
on,
showed
a
12-month
rate
of
3.5%
in
March.
That
was
both
above
market
expectations
and
represented
an
increase
of
0.3
percentage
point
from
February,
giving
rise
to
the
idea
that
hot
readings
to
start
the
year
may
not
have
been
an
aberration.

Following
the
CPI
release,
traders
in
the
fed
funds
futures
market
recalibrated
their
expectations.
Market
pricing
now
implies
the
first
rate
cut
to
come
in
September,
for
a
total
of
just
two
this
year.
Previous
to
the
release,
the
odds
were
in
favor
of
the
first
reduction
coming
in
June,
with
three
total,
in
line
with
the “dot
plot”
projections
released
after
the
March
meeting.

The
discussion
at
the
meeting
indicated
that “almost
all
participants
judged
that
it
would
be
appropriate
to
move
policy
to
a
less
restrictive
stance
at
some
point
this
year
if
the
economy
evolved
broadly
as
they
expected,”
the
minutes
said. “In
support
of
this
view,
they
noted
that
the
disinflation
process
was
continuing
along
a
path
that
was
generally
expected
to
be
somewhat
uneven.”

In
other
action
at
the
meeting,
officials
discussed
the
possibility
of
ending
the
balance
sheet
reduction.
The
Fed
has
shaved
about
$1.5
trillion
off
its
holdings
of
Treasurys
and
mortgage-backed
securities
by
allowing
up
to
$95
billion
in
proceeds
from
maturing
bonds
to
roll
off
each
month
rather
than
reinvesting
them.

There
were
no
decisions
made
or
indications
about
how
the
easing
of
what
has
become
known
as “quantitative
tightening”
will
happen,
though
the
minutes
said
the
roll-off
would
be
cut
by “roughly
half”
from
its
current
pace
and
the
process
should
start “fairly
soon.”
Most
market
economists
expect
the
process
to
begin
in
the
next
month
or
two.

The
minutes
noted
that
members
believe
a “cautious”
approach
should
be
taken.