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Fed Minutes Show Concerns of More Persistent High Inflation


WASHINGTON—Federal Reserve officials expressed concern at their meeting last month over the persistence of high inflation and expected that bringing prices and wages down would likely require the labor market to weaken.

Many officials revised higher their expectations for anticipated rate rises, though some signaled greater caution about overdoing increases due to elevated risks of economic and financial volatility, according to minutes of the Sept. 20-21 gathering released Wednesday.

The Federal Reserve’s main tool for managing the economy is to change the federal-funds rate, which can affect not only borrowing costs for consumers but also shape broader decisions by companies like how many people to hire. WSJ explains how the Fed manipulates this one rate to guide the entire economy. Illustration: Jacob Reynolds

The minutes said officials believed raising rates to more restrictive levels would ensure higher inflation doesn’t become embedded in the economy. They agreed that raising rates more aggressively now would “prevent the far greater economic pain associated with entrenched high inflation, including the even tighter policy and more severe restraint on economic activity that would then be needed to restore price stability,” the minutes said.

The Fed has lifted its benchmark federal-funds rate five times this year to a range between 3% and 3.25% today from near zero, the most rapid pace of rate increases since the early 1980s to fight inflation running near 40-year highs.

Officials approved rate increases of 0.75-percentage point at each of their past three meetings. Nearly all who participated in last month’s gathering penciled in large interest rate rises at each of their coming two meetings this year.

Most anticipated an additional, cumulative 1.25 percentage point in interest-rate rises this year. To achieve that, officials could lift their benchmark rate by 0.75 percentage point at their November meeting and by 0.5 point at their gathering in December. Other officials projected raising the rate by one percentage point by year’s end.

Until June, the Fed hadn’t raised rates by 0.75 point since 1994. Officials made a second such increase in July, but signaled more concerns about possibly overdoing rate rises, which, together with investor optimism about how quickly inflation might decline, fueled a market rally through mid-August.

A series of interest-rate rises have rippled through the U.S. economy, and more are projected to be on the way. WSJ breaks down the numbers hitting Americans’ wallets this year and beyond. Photo: Elise Amendola/Associated Press

The rally threatened to undercut the Fed’s steps to slow the economy and weaken price pressures, and Fed Chairman

Jerome Powell

delivered a blunt speech in August designed to underscore the Fed’s commitment to reducing inflation.

Mr. Powell repeated that message at a Sept. 21 news conference. “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” he said.

In the days following last month’s policy meeting, global market turmoil accelerated. Sharp dislocations in U.K. government-debt markets last month prompted the Bank of England to purchase large amounts of longer-dated securities to stem broad fire sales.

Markets have remained volatile in recent days as U.K. policy makers debate how to wind down that intervention to focus on combating high inflation. The market strains have highlighted the potential for unexpectedly rapid increases in global interest rates this year to upend investment strategies and amplify strains as bond and other asset prices fall.


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Most Fed officials have said they are monitoring market volatility, but haven’t suggested the strains have materially changed their outlook for the economy—keeping them on course to continue raising rates rapidly.

The minutes showed officials’ growing concern about how long it has taken for supply-chain constraints to bring down higher prices for goods—at the same time that tight labor markets could keep wages and prices elevated.

The U.S. economy slowed in May and June but appeared to regain momentum through the summer. Fed officials have said they wanted to see more evidence that the labor market was cooling off, which should help ease price pressures.

The economy has added an average of 432,000 jobs monthly over the past six months, far above the rate of fewer than 100,000 that economists think would keep the unemployment rate steady. The Labor Department reported last week the unemployment rate fell to 3.5% in September from 3.7% in August.

(More to Come)

Write to Nick Timiraos at [email protected]

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