Fed officials adopted a more dovish stance in September as economic uncertainty increased

Fed officials adopted a more dovish stance in September as economic uncertainty increased

WASHINGTON (Reuters) – A growing sense of uncertainty about the path of the U.S. economy, with volatile data and tightening financial markets posing risks to growth, pushed policymakers at the Federal Reserve (the U.S. central bank) into a new cautious stance last month, a stance that… Reconfirmed by senior officials. US central bank officials made a series of statements this week.

Minutes from the Fed’s September 19-20 meeting showed that policymakers are grappling with the risks they agreed were no longer just about inflation, with global energy and food markets perhaps threatening a new spike in prices, but potentially slowing global growth. Labor strikes and tightening financial markets. Stifling the economy in unexpected ways that kills jobs.

“The vast majority of respondents continued to judge the future path of the economy as highly uncertain,” the minutes said, listing a raft of reasons “that support the case for proceeding cautiously” before the Fed raises its benchmark overnight interest rate again.

This point was amplified by comments this week from senior Federal Reserve officials who suggested that the recent rise in US Treasury yields could replace additional interest rate increases, slowing the economy and inflation, beyond any other measure. By the central bank. .

The moves in the bond market began after the Fed’s latest rate hike in July, noted by staff analysis at the September meeting that showed a rise in inflation-adjusted “real” interest rates, and reflected in recent comments by a Fed deputy. President Philip Jefferson and influential Governor Christopher Waller.

“Financial markets are tightening and they will do some of the work for us… We’re watching that closely. We’ll see how those higher rates impact what we do on policy going forward.” “We’re in this position where we’re watching and seeing what happens,” said Waller, who on Wednesday interviewed former U.S. House Speaker Paul Ryan at a high-profile Republican event in Utah.

The US central bank agreed at its meeting last month to keep interest rates steady even as a 12-7 majority in new forecasts indicated that interest rates may be needed again by the end of the year to ensure inflation returns to the Fed’s 2% target.

Investors since that meeting have steadily downplayed the likelihood of any further rises. After releasing the meeting minutes on Wednesday, they gave less than a 10% chance of a rate increase in the October 31-November period. 1 meeting and roughly a 26% chance in the Dec. 12-13 session, according to CME Group’s FedWatch tool.

Change the debate

Although policymakers publicly agree that there is still “work to do” with key measures of annual inflation remaining well above 3%, many in recent days have weighed in on the possibility that interest rates may not actually need to rise. Height.

In fact, the minutes showed that even as the majority said another increase was likely, the debate had shifted toward focusing on how long the “restrictive” policy would be maintained rather than on how much of an increase interest rates might need.

According to the minutes, “many participants” felt that “the focus of monetary policy decisions and communications should shift from how much to raise the interest rate to how long to keep the interest rate at constrained levels.”

For now, “all participants agreed that policy should remain restrictive for some time” until it is clear that inflation is “sustainably downward toward its target.”

The release of the September CPI report on Thursday could add momentum for the Fed to remain on hold. If recent inflation trends continue month-to-month, it means “we’re pretty much back on target,” Waller said.

Howard Schneider reports. Additional reporting by Anne Saphir; Edited by Paul Simao

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Covering the US Federal Reserve, monetary policy and economics, he is a graduate of the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, economics correspondent and local staff for The Washington Post.

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