Jerome Powell made a perfect summary of the meeting of the Federal Reserve when he appeared on July 27 after approving the second consecutive rise of 0.75 points.
Powell said there would be further gains, but it would depend on the data whether they held at that pace or slowed down.
The minutes of the meeting, published this Wednesday, reflect that internal debate, but do not allow conclusions to be drawn about what the next move will be.
“Participants agreed that the pace of official interest rate hikes and the degree of monetary policy tightening in the future would depend on the implications of information received on the economic outlook and the risks to them,” say the proceedings.
“Participants considered that, as the monetary policy stance tightens, it would probably be appropriate at some point to slow down the pace of policy rate hikes while the effects of accumulated policy adjustments are assessed. on economic activity and inflation.
Some participants suggested that once the official interest rate had reached a sufficiently restrictive level, it would probably be worth keeping it for some time to ensure that inflation returned firmly to the 2% path, “the document adds.
The same message
One lime and one sand.
On the one hand, "at some point" it will be necessary to slow down the pace of the climbs.
On the other hand, the restrictive monetary policy will have to be maintained “for some time”.
Neither of the two things, however, adds much novelty.
The message left by the minutes is consistent – it could not be otherwise – with the one that Powell gave after that rate hike of 0.75 points.
In the press conference he measured his words a lot and preferred not to give indications about the next step to take.
Since then, new inflation data has been published, with a drop in the general year-on-year rate from 9.1% to 8.5%, but without moving from 5.9% in core inflation, a better indicator of the pressures on the prices that become entrenched in the economy.
Unemployment data has also been published, which equals the lowest unemployment rate in 50 years, 3.5%.
At the July 27 press conference, Powell said: “We anticipate that continued increases in the target range of the fed funds rate will be appropriate.
The pace of these increases will continue to depend on data releases and developments in the economy's outlook.
The increase is the second increase of 75 basis points [0.75 percentage points] in as many meetings.
While another unusually large hike might be appropriate at our next meeting, that's a decision that will depend on what data we get between now and then," appearing to give another 0.75 point hike in September as likely, but then quickly added: "A As the monetary policy stance tightens further,
it is likely appropriate to slow the pace of hikes while we assess how our cumulative policy adjustments are affecting the economy and inflation.”
Markets took this latest message, which left the door open to slow down rate hikes, and reacted higher.
It is the same message that the minutes now reflect.
In subsequent questions he did not clear the doubts.
And the minutes also leave in the air what will happen on September 21, the date of the next monetary policy meeting of the Reserve.
There is another inflation data and many of the labor market to be published until then.
Powell also said that he believed that interest rates are already around a neutral level, which neither stimulates nor slows down the economy, but that additional increases are needed to cool demand and bring inflation down.
In this being or not being, the minutes also reflect the risks attached to each alternative.
If the pace of rate hikes is slowed down too soon and inflation does not ease, the central bank will have a credibility problem.
On the contrary, some pointed to the risk of slowing down the economy more than was necessary to curb inflation.