Fed Minutes: Getting Inflation Under Control Still 'Likely To Take Some Time'

Inflation remains the central bank's top priority, according to the November meeting minutes released Wednesday by the Federal Open Market Committee.

What Investors Need To Know: The Fed's language on the economy was relatively bullish, given recently elevated fears of a U.S. recession. The Fed reiterated its previous intentions to do whatever it takes to bring inflation down, but said it may continue to soften its tightening measures.

“A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee’s resolve to achieve its price-stability goal or a judgment that inflation was already on a persistent downward path,” the Fed said in its minutes.

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The Fed also discussed the risks associated with a pivot from tightening to loosening.

"Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time," the Fed said.

In addition, FOMC members said "historical experience cautioned against prematurely loosening monetary policy."

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Why It’s Important: The minutes come after the Federal Reserve raised interest rates by 0.5% in December, following four 0.75% interest rate hikes in five months. The bond market is pricing in a 70.2% chance of a 0.25% rate hike and a 29.8% chance of another 0.5% rate hike in February, according to CME Group.

The Federal Reserve has been under pressure for months to raise interest rates aggressively to combat inflation, but it must also attempt to avoid plunging the U.S. economy into a recession.

Consumer Price Index (CPI) inflation reached a 40-year high of 9.1% back in June 2022, but has since dropped back down to 7.1% as of November.

In December, the Fed projected 0.5% U.S. GDP growth in 2023 and 1.6% growth in 2024. The Fed also projected 2023 PCE inflation of 3.1% and an unemployment rate of 4.6%. FOMC members are now projecting a 2023 terminal interest rate of 5.1%, up from 4.6% in September.

The FOMC will update its economic projections again at its March meeting.

Markets React: The SPDR S&P 500 ETF Trust SPY traded higher by 0.9% after the Fed minutes reassured investors the economy is on solid footing for now and the Fed is willing to act with additional rate hikes if needed.

The yield on 10-year U.S. Treasury bonds dropped slightly Wednesday to 3.722% after hitting multiyear highs above 4.2% in October.

Photo: courtesy of Federalreserve on flickr.