The National Bank of Kuwait’s weekly report said that the minutes of the Federal Reserve’s June meeting, which was released on Wednesday, revealed that senior Fed officials believe that entrenched inflation poses a “severe risk” to the US economy and fear that there will be an urgent need to implement tighter monetary policies if it exceeds Price growth their forecast. Officials at the meeting emphasized the need to fight inflation, even if it means a slowing economy that already appears to be on the brink of recession.
Policy makers reiterated their support for raising interest rates to the point where economic activity is constrained, with the possibility of policies becoming “tighter” if the data calls for it. Central bankers stated that raising benchmark borrowing rates by 0.75 percentage points in June (for the first time since 1994) was necessary to control the increase in the cost of living, which reached its highest levels since 1981. They said they would continue to do so until inflation neared the target. In the long term, 2%. They also acknowledged that tightening the policy will have a cost. The meeting summary stated that “participants have recognized that steadfastness of policies may slow down the pace of economic growth for some time, but they considered that the return of inflation to the level of 2% is critical to achieving maximum employment opportunities on a sustainable basis.”
The notes from the Federal Open Market Committee revealed the concern spreading across the upper echelons of the US central bank about inflation, which is moving at an annual pace of 8.6%, and the report also showed the efforts officials were prepared to make to ensure that prices did not get out of control, and the reserve will decide The Fed will decide whether to raise interest rates by 0.50 percentage points or 0.75 percentage points at its meeting this month, although many officials have indicated their support for higher rates, which appears to be in line with market expectations.
The minutes echoed recent comments by Federal Reserve Chairman Jerome Powell who emphasized that the Fed had little room for maneuver as it tried to rein in inflation without causing widespread job losses. He said last month that a recession is now “possible” in the United States and will depend largely on factors beyond the Fed’s control, citing the war in Ukraine and China’s prolonged lockdown measures to contain the outbreak of the “Covid-19” virus. Powell repeated that message last week in a session with other central bank governors, when he warned that failure to restore price stability would lead to a worse outcome for the US economy.
The June meeting minutes shed more light on the reason for the Fed’s surprising decision to significantly accelerate monetary policy tightening, choosing to ignore its previously indicated plans to raise interest rates for the second time in a row by 0.50 percentage points. The decision came after the publication of two economic reports, one of which showed a large jump in consumer prices during the month of May, and the other revealed a rise in inflation expectations. Participants expressed concern that the first report indicated that inflationary pressures had not yet abated, and “reinforced the view that inflation will be more stable than they had previously anticipated.”
The June meeting also included a revision of expectations, which indicated that officials expected to raise interest rates to just under 3.5% by the end of the year. The interest rate is expected to be raised again to 3.75% next year before lowering it in 2024.