FOMC Minutes Show Inflation Could Remain Above 2% Beyond 2023

Minutes of the Federal Open Market Committee (FOMC) June meeting showed participants focused on data showing lower employment growth and higher inflation readings than had been expected.

The median expectation is that the Federal Reserve will begin tapering its asset purchases in the first quarter (Q1) of 2022, before ending the buying activity asset purchases in Q4 of 2022.

However, most FOMC members also saw a reasonable chance that this decline could occur one quarter earlier or later, the minutes pointed.

Most expectations also lean towards expecting the first interest rate hike in Q3 of 2023.

The policy rate is expected to remain below 0.25% until Q1 of 2023.

The majority also anticipated that the Summary of Economic Projections would show the median FOMC participant projecting either no increase in the target range or a 0.25% increase by the end of 2023.

During the June 15–16 meeting, FOMC members acknowledged that U.S. financial conditions eased further with a decline in Treasury bond yields.

The majority agreed that the highly anticipated “substantial further progress” was generally seen as not having yet been met, but participants expected progress to continue.

“Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data.”

The surge in the inflation rate, the consumer price index (CPI), was seen as largely reflecting transitory factors.

“Inflation was projected to slow to slightly below 2% in 2022 before moving back up to a bit above 2% in 2023, supported by high levels of resource utilization.”

“With monetary policy assumed to remain accommodative, inflation was projected to moderately overshoot 2 percent for some time in the years beyond 2023.”

Meanwhile, participants observed that economic activity was expanding at a historically rapid pace, led by robust gains in consumer spending.

FOMC members voted unanimously to maintain the current main rate near 0%, viewing it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the maximum employment and price stability targets, with inflation at 2% and on track to moderately exceed this rate for some time.