Fed officials were cautious in September

Fed policymakers expected that interest rates may need to rise slightly as of their meeting in September. Recently released minutes From the assembly shown. But they were also determined to creep forward cautiously, for fear of overdoing it and strangling the economy too much.

Officials kept interest rates unchanged at their meeting in September. They have been raised sharply since the March 19-20, 2022 meeting. Interest rates are now set to range between 5.25 and 5.5 percent, up from near zero 19 months ago.

Even as policymakers left borrowing costs steady last month, they predicted they may need to make another interest rate move in 2023. They also estimated they would leave interest rates at a high level for an extended period, with only a small cut next year. Because the Fed’s higher interest rates make it more expensive to borrow to buy a home or expand a business, these higher costs are expected to gradually cool the economy, helping central bankers curb demand and control inflation.

However, Fed officials have become increasingly concerned that they may overdo their campaign to slow economic growth. Inflation has begun to moderate, and central bankers do not want to tighten the economy to the point that it might lead to higher unemployment rates or trigger a collapse in financial markets.

“Participants generally indicated that it is important to balance the risks of excessive tightening with the risks of insufficient tightening,” the minutes released on Wednesday said.

The economy has so far proven its ability to withstand high interest rates. Even as Federal Reserve officials pushed interest rates to the highest level in 22 years, consumers continued to spend, and businesses continued to hire workers. The September jobs report showed that employers added many more new workers last month than economists expected.

This staying power has led policymakers and Wall Street alike to hope that the Fed can achieve what is often called a soft landing, gently cooling the economy and lowering inflation without undermining growth and pushing unemployment too high.

But soft landings are historically rare, and officials remain cautious about risks to the outlook. The minutes showed that Fed officials identified the auto workers’ strike as a new risk facing the economy, one that carries the potential for increased inflation and slower growth. They also believed that the rise in gas prices might make it more difficult to control inflation. At the same time, they noted that a slowdown in China could lead to slower global growth, and noted that stress in the banking sector could also be a drag on the economy.

There is also the possibility that the economy will not slow enough to allow inflation to fully moderate.

As of the September meeting, a “majority” of Fed officials thought another rate hike would be needed, while “some” thought there probably wouldn’t be a need to raise rates again.

Since that rally, long-term interest rates in the markets have risen significantly. This has caused investors to doubt that officials will actually follow through on the eventual interest rate move.

Fed policymakers themselves have indicated that they may not need to raise interest rates further, because higher borrowing costs in markets will help slow the economy.

Christopher J. Waller, the Fed governor who often favors raising interest rates, said at an event on Wednesday that officials were in a position to “watch and see” what happened, and would be watching “closely” the move and “how it might… that happens”. These rising rates feed into what we do with politics in the coming months.