Federal Reserve minutes: Officials worried that progress on inflation could stall in coming months

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BY CHRISTOPHER RUGABER

WASHINGTON (AP) — Federal Reserve officials acknowledged at their most recent meeting in January that there had been “significant progress” in reducing U.S. inflation. But some of the policymakers expressed concern that strong growth in spending and hiring could disrupt that progress.

In minutes from the Jan. 30-31 meeting released Wednesday, most Fed officials also said they were worried about moving too fast to cut their benchmark interest rate before it was clear that inflation was sustainably returning to their 2% target. Only “a couple” were worried about the opposite risk — that the Fed might keep rates too high for too long and cause the economy to significantly weaken or even slip into a recession.

Some officials “noted the risk that progress toward price stability could stall, particularly if aggregate demand strengthened” or that the progress in improving supply chains could falter.

Officials also cited the disruptions in Red Sea shipping, stemming from the conflict in the Middle East, as a trend that could accelerate prices.

The sentiments expressed in Wednesday’s minutes help explain the Fed’s decision last month to signal that its policymakers would need more confidence that inflation was in check before cutting their key rate. At the January meeting, the Fed decided to keep its key rate unchanged at about 5.4%, the highest level in 22 years, after 11 rate hikes beginning in March 2022.

At a news conference after the meeting, Chair Jerome Powell disappointed Wall Street by indicating that the Fed was not inclined to cut rates at its next meeting in March, as some investors and economists had hoped. Rate cuts by the Fed typically lower a wide range of borrowing costs, including for homes, cars and credit card purchases, as well as for business loans.

The Fed’s aggressive streak of rate hikes was intended to defeat spiking inflation. Consumer prices jumped 9.1% in June 2022 from a year earlier — a four-decade high — before falling to 3.1% in January.

Several Fed officials have said in recent speeches that they were optimistic that inflation would continue to slow. In December, the officials projected that they would cut their rate three times this year, though they have said little about when such cuts could begin. Most economists expect the first reduction in May or June.

A shift toward rate cuts could put the Fed under scrutiny in this year’s presidential race, with the likely Republican nominee, Donald Trump, declaring that if he won the election, he wouldn’t reappoint Powell when his term as chair expires in 2026. Trump has called Powell “political” for considering rate cuts that Trump said could benefit President Joe Biden and other Democrats. Powell was first nominated to be Fed chair by Trump in 2017.

Since January’s meeting, there have been signs that inflation may take longer to return sustainably to the Fed’s target than many economists had expected. A gauge of consumer prices that excludes volatile food and energy costs rose much more than expected in January. And a measure of wholesale prices also picked up in January after several months of nearly flat or declining readings.

Some Fed officials who have spoken since those reports were released have reiterated their view that inflation is still steadily declining. But they have added that upcoming economic reports will be critical in determining the Fed’s next moves.

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