Fed On Track To Raise Rates Despite Weak Inflation, Minutes Show
October 11 2017 - 2:30PM
Dow Jones News
By David Harrison
Most Federal Reserve officials believed at their meeting last
month that they would likely raise short-term interst rates again
this year, though some said their decision would hinge on whether
inflation picks up in coming months.
The key question for policy makers is whether the recent soft
patch in price increases is temporary or whether it reflects
longer-lasting developments, according to minutes of the central
bank's Sept. 19-20 meeting. Many officials at the meeting believed
it was the former. If it's not, some indicated it would cause them
to reassess the projected path of rate increases.
The minutes were released Wednesday after the usual three-week
lag.
Several officials said their decision on another rate move this
year "would depend importantly on whether the economic data in
coming months increased their confidence that inflation was moving
up toward the committee's symmetric 2% objective."
"It was noted that some patience in removing policy
accommodation while assessing trends in inflation was warranted,"
the minutes said.
Others, however, were worried that holding off on raising
interest rates too long could lead to a surge in inflation that
would be difficult to control. High asset prices added to their
concern, the minutes said.
Inflation over the previous 12 months has held steady at 1.4%
for the past three months, according to the Fed's preferred
measure.
The Fed raised rates in June to a range of between 1% and
1.25%.
Speaking in Cleveland on Sept. 26, Fed Chairwoman Janet Yellen
conceded that weak inflation remained a "mystery." Although she
continued to anticipate another 2017 rate increase, she made clear
she was open to changing her mind.
"We will monitor incoming data closely and stand ready to modify
our views based on what we learn," she said.
Some officials have said they see little risk on holding off on
another move until inflation picks up again.
Earlier Wednesday, Chicago Fed President Charles Evans said he
was "a little nervous" about raising rates again unless inflation
moves up. Mr. Evans is a voter on the Fed's policy committee this
year.
"I don't really see any harm in waiting longer just to take more
stock of the inflation situation," he told an audience in
Zurich.
Dallas Fed President Robert Kaplan, another voter, has also said
he'd open-minded about another rate move this year.
Others, however, such as New York's William Dudley and San
Francisco' John Williams are confident inflation will move up and
are willing to move again, according to recent remarks.
As they have in other recent meetings, officials last month laid
out possible explanations for the low inflation numbers.
One theory held that low inflation readings were a temporary
phenomenon that would face over time. A second possibility is that
technological changes have changed how businesses set prices, which
could hold down infrlation. It could also be that globalization has
pushed down price pressures in ways that are difficult to
understand.
"It was noted that other advanced economies were also
experiencing low inflation, which might suggest that common global
factors could be contributing to the persistence of below-target
inflation in the United States and abroad," the minutes said.
All in all, the minutes indicate officials have yet to reach a
conclusion on inflation, which could add to the uncertainty
surrounding monetary policy in the months ahead.
Officials in September also agreed to kick off the years-long
process of shrinking the Fed's $4.5 trillion portfolio. The move
had been anticipated for months and caused no major market
reaction, as officials had predicted.
Markets "appeared to have a clear understanding of the
committee's planned approach for a gradual normalization of the
size of the Federal Reserve's balance sheet," the minutes said.
(END) Dow Jones Newswires
October 11, 2017 14:15 ET (18:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.