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The minutes from the most recent Federal Reserve meeting highlighted that the central bank doesn’t plan to let up on interest rate increases until inflation falls further.
The Federal Open Markets Committee (FOMC)—the core Fed committee that sets interest rates and guides monetary policy—raised the federal funds rate by one quarter of a percentage point at the most recent Fed meeting on January 31 and February 1.
The minutes from this meeting, released today, showed clearly that the officials who sit on the FOMC agree that getting inflation back to the Fed’s 2% target would “take some time.” Most analysts believe this means the Fed will raise the fed funds rate again and keep it above 5% for the rest of 2023—if not longer.
The S&P 500 has declined approximately 5% since the most recent Fed meeting, and stocks flatlined after the release of the minutes. The 10-year Treasury yield rose to 3.92%, its highest level since November 2022.
“While the stock market has staged an impressive rebound so far this year, markets are still trying to adjust to the reality that the Federal Reserve is unlikely to pivot and is instead still focused on fighting inflation,” said Carol Schleif, chief investment officer at BMO Family Office in Minneapolis.
Fed Minutes Acknowledge Inflation Has Been Easing
Just two weeks after the most recent Fed meeting, the January consumer price index (CPI) data confirmed that inflation is indeed on the wane.
The Labor Department reported that CPI was 6.4% in January, down slightly from the 6.5% increase in December—and well off the peak in June 2022 of 9.1%.
“Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path,” noted the minutes.
Translated into plain English, this means that while inflation has steadily cooled off recently, it’s still not enough for the Fed.
In a recent speech, St. Louis Fed President James Bullard reiterated that keeping fed interest rates in a range of 5.25% to 5.5% would help bring inflation back towards the 2% target.
Fed Minutes Show Continued Worries about the Labor Market
The Fed has a dual mandate: keep inflation low and ensure there are plenty of jobs for Americans. The latter part of its mandate has posed something of a dilemma for the central bank.
Fed officials have reiterated over and over again that they want to see the red-hot labor market cool off more before they can ease up on rate hikes. But the most recent labor market data suggest that’s not happening yet.
The January unemployment rate fell to a level not seen since 1969, while there were 517,000 new jobs added in the month. Revisions to 2022 and 2021 data showed that past job growth was even stronger than previously reported.
Today’s Fed minutes stated that the labor market “remained very tight, contributing to continuing upward pressures on wages and prices.”
Federal Reserve FAQs
What is the Federal Reserve?
The Federal Reserve is the central bank of the U.S.. It’s officially known as the Federal Reserve System, as it also includes 12 regional divisions across the country. The 1913 Federal Reserve Act established a central governing board, the FOMC and the 12 regional Fed banks.
What are the FOMC minutes?
The FOMC minutes are a detailed record of the committee’s policy-setting meeting. The minutes are released about two weeks after each FOMC meeting.
What does the Federal Reserve do?
The Fed has five main tasks.
- Manage U.S. monetary policy by adjusting interest rates and using other policy tools.
- Oversee the smooth functioning of the U.S. financial system.
- Regulate large financial institutions and banks.
- Ensure the smooth functioning of the payments system.
- Administer certain consumer laws, and undertake research to support its overall mission.
What is the FOMC?
The FOMC is the body that sets monetary policy. The FOMC meets eight times a year to make decisions about the federal funds rate and the Fed’s balance sheet.
There are 12 members on the FOMC, including:
- The seven members of the Fed Board of Governors, led by the Fed chairperson.
- The president of the Federal Reserve Bank of New York.
- Four seats are filled by the other 11 regional Federal Reserve Bank presidents, who serve one-year terms on a rotating basis.
When is the next Fed meeting?
The FOMC has eight scheduled meetings each year. They last two days and typically end on a Wednesday. Here’s the 2023 FOMC meeting schedule:
- January 31 to February 1
- March 21-22
- May 2-3
- June 13-14
- July 25-26
- September 19-20
- October 31 to November 1
- December 12-13
Four of those meetings include a Summary of Economic Projections. This document shows the FOMC participants’ expectations for economic growth, the unemployment rate and inflation in the near and medium-term future