The minutes from the most recent Federal Reserve meeting reflect its continued willingness to combat inflation aggressively.
- The U.S. Federal Reserve has published the minutes of its February 1 gathering today.
- The February 1 interest rate hike was the eighth consecutive hike in 11 months, raising rates 25 basis points to 4.5% to 4.75%.
- This represented a declining trend for hikes, with the December hike being 50 basis points and several previous being 75 basis points.
- The Fed remains determined to meet its goal of 2% yearly inflation, a number the January Consumer Price Index (CPI) was well above at 6.4%, down from its 9.1% peak in June.
- The Fed will likely hike interest rates at least three more times before this summer. February’s CPI will be revealed on Tuesday, March 14.
- The market closed generally flat, with the S&P 500 Index down 0.1% and the Nasdaq Composite up 0.13%
Why It’s Important
The slow decrease in inflation rates over the past eight months has been encouraging to the Fed. However, the recent slowdown in rate reduction has begun to reaffirm its willingness to continue aggressively tightening monetary policy at the expense of the job market. Business leaders such as Tesla CEO Elon Musk and ARK Invest CEO Cathie Wood have warned that this could lead to a deflationary economy in the near future.
As we previously reported, the Fed’s optimism began to turn with the release of December’s meeting minutes. Inflation has not been decreasing at the rate it hopes. Investors continue to be nervous about the extent of the Fed’s actions and how it will affect the economy.
Fed Chair Jerome Powell has acknowledged since his Jackson Hole speech in August that the side effects of his policies will be a tightening of the job market and an artificial recession risk, but this was better than the long-term pain of entrenched inflation. A strong job market in recent months has discouraged and emboldened the Fed.
“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” says the Fed.