Federal Reserve officials fretted about the level and staying power of inflation at their September meeting, minutes from the gathering showed, and “many” emphasized that the risk of doing too little to control price increases outweighed the risk of doing too much.
Central bankers have lifted their benchmark interest rate five times this year as they try to slow consumer demand and drive down rapid inflation, including large three-quarter point increases at each of their last three meetings. At their last meeting, policymakers projected that they would raise interest rates by another 1.25 percentage points by the end of the year. The Fed’s aggressive action — and those forecasts — came as central bankers worried about continued risks that could keep inflation elevated.
Inflation “remained unacceptably high,” according to the September meeting notes, which said that price increases had been slowing less readily than officials had expected and cited reasons they could remain surprisingly fast.
“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 increases as potential shocks that, if they materialized, could compound an already challenging inflation problem,” according to the minutes.
Given how stubborn inflation is proving, officials thought it was critical to stick with their efforts to slow the economy and clamp down on inflation even if, and when, the labor market slows.
“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes said.
Wall Street has been carefully watching for any hint at when and how much central bankers will slow their rate increases. Officials’s forecasts from September implied that central bankers might lift interest rates by another three-quarters of a percentage point at their upcoming November meeting before slowing to half a point in December.
Before the minutes were released, market pricing suggested that investors largely expected the Fed to raise interest rates by three-quarters of a point at their next meeting, which will take place Nov. 1-2.
Fed officials have been clear that even when they stop lifting rates, they plan to leave them at an economy-constraining level for some time, until inflation is clearly on its way back to their goal.
While supply chains are healing and used car prices show hopeful signs of coming down, goods prices more broadly have yet to moderate significantly. Service prices — especially rent — are now climbing steeply, helping to push up overall inflation.
“Participants saw supply bottlenecks as likely continuing for a while longer, and a couple commented that constraints on production were increasingly taking the form of labor shortages rather than parts shortages,” the minutes said. “Participants judged that a softening in the labor market would be needed to ease upward pressures on wages and prices.”
