ABC News Today

The Federal Reserve Board building on Constitution Avenue is shown in Washington, U.S., March 27, 2019. REUTERS/Brendan McDermid/File Photo

WASHINGTON, Aug 17 (Reuters) – Federal Reserve officials saw “little evidence” late last month that U.S. inflationary pressures were easing and held off on forcing the economy to slow as much as necessary to control rising prices, according to Reuters. minutes of their July 26-27 policy meeting.

While not explicitly hinting at a particular pace of future rate hikes, starting with the Sept. 20-21 meeting, the minutes released Wednesday showed policymakers committed to raising rates as high as necessary to control inflation and recognize that they would have to design less spending and reduce overall growth for this to happen.

At the July meeting, Fed officials noted that while some parts of the economy, notably housing, had begun to slow under the weight of tighter credit conditions, the labor market remain strong and unemployment was at an all-time low.

On the metric that mattered most, however, Fed officials at least as of late July had reported little progress.

“Participants agreed that so far there was little evidence that inflationary pressures were abating,” the minutes said. While some reduction in inflation could come from improved global supply chains or falling prices for fuel and other commodities, some of the heavy lifting should also come from imposing higher borrowing costs in homes and businesses.

“Participants emphasized that a slowdown in aggregate demand would play an important role in reducing inflationary pressures,” the minutes said.

The pace of future hikes would depend, according to the minutes, on incoming economic data as well as the Fed’s assessments of how the economy was adjusting to the higher rates already approved.

Some participants said they believed rates should reach a “tight enough level” and stay there for “some time” to control inflation, which is nearing a four-decade high.

In a glimpse of the emerging debate at the central bank, “many” participants also pointed to the risk that the Fed “could tighten the policy stance more than necessary to restore price stability,” which they said was sensitive to incoming data. even more important. [nL1N2ZS1FQ]

Following the minutes’ release, futures traders linked to the Fed’s policy rate saw a half-percentage-point rate hike as most likely in September, with fed funds futures prices reflecting only a 40% chance of an increase of 75 basis points. .

DATA INPUT

The Fed has raised its benchmark interest rate by 225 basis points this year to a target range of 2.25% to 2.50%. The central bank is expected to raise rates next month by 50 to 75 basis points.

For the Fed to reduce rate hikes, inflation reports due before the next meeting would have to confirm that the pace of price increases was slowing.

Data from the Fed’s July policy meeting showed that annual consumer inflation eased this month to 8.5% from 9.1% in June, a fact that would argue for the smaller increase in rate by 50 basis points next month.

But other data released Wednesday showed why that remains an open question.

U.S. core retail sales, which correspond more closely to the consumer spending component of gross domestic product, were stronger than expected in July. These data, along with the shock value headline that inflation had surpassed the 10% mark in the UK, seemed to have investors in futures linked to the Fed’s target policy interest rate shifting bets in favor of a rate of 75 basis points. walk next month Read more

Meanwhile, a Chicago Fed index of credit, leverage and risk metrics showed continued contraction. This poses a dilemma for policymakers who feel that tighter financial conditions are needed to curb inflation.

Job and wage growth in July beat expectations, and a recent rally in the stock market may show an economy still too “hot” for the Fed’s comfort. Read more

Reporting by Howard Schneider; Editing by Paul Simao

Our standards: the Thomson Reuters Trust Principles.