- Investors hoping for a reprieve were left disappointed when minutes from the Fed’s most recent meeting revealed that policymakers saw little sign of inflation improving, even though headline inflation was lower in July than it was in June.
- Fed minutes signaled policymakers were intent on pressing ahead with tightening monetary policy but aware of the risks of overdoing it, until inflation hit targets even to the point where they act as a drag on economic growth.
With the U.S. Federal Reserve raising benchmark interest rates by 75 basis points for a second straight month, marking the fastest pace of tightening since the early 1980s in a battle against inflation, investors are increasingly concerned that this will become a pattern until price pressures subside.
The Fed’s benchmark policy rate has increased from near zero to a target range of 2.25% to 2.5% percent in just four months, roiling all manner of risk assets, from cryptocurrencies to equities and raising recession risks to take down commodities as well.
Investors hoping for a reprieve were left disappointed when minutes from the Fed’s most recent meeting revealed that policymakers saw little sign of inflation improving, even though headline inflation was lower in July than it was in June.
Latest U.S. inflation data saw no increase in consumer price growth between June and July and a slower annual rate of 8.5% following a surprisingly strong jobs report the previous week, which showed that the U.S. economy added 528,000 positions in July, over double economist estimates of 258,000.
Fed minutes signaled policymakers were intent on pressing ahead with tightening monetary policy but aware of the risks of overdoing it, until inflation hit targets even to the point where they act as a drag on economic growth.
Some Fed policymakers indicated that it would probably be appropriate to maintain higher interest rates to ensure that inflation was firmly on a path back to the Fed’s target of 2% once rates had been raised to the point where they were cooling down the economy sufficiently.
Minutes of the Fed’s most recent meeting paint a dramatically less sanguine path for interest rates, especially against the backdrop of Fed Chairman Jerome Powell’s comments at the post-meeting press conference that suggested it might be “appropriate to slow the pace of increases.”
The market rally that gathered steam in recent weeks as investors interpreted Powell’s comments as dovish, has since been hit with the harsh reality of the inner workings of policymakers and markets have retraced from their previous sharp rally.
