Fed’s “confidence” in disinflation not helped by latest data, minutes show

The diagnosis may have been reinforced by Wednesday’s figures that showed another surprise jump in inflation.

Federal Reserve officials feared that progress on inflation had stalled and that a longer period of tight monetary policy would be needed to control the pace of rising prices, minutes of the March meeting showed Wednesday.

“Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation would move sustainably toward 2%,” the minutes showed, which may have been reinforced by data Wednesday that showed another surprise jump in inflation.

Fed policymakers are debating whether the biggest risk is that monetary policy will remain too tight for too long, or that it will ease too soon and fail to bring inflation back to its 2% target.

Some officials continued to argue that important elements such as housing inflation would begin to slow, and “several” argued that rising productivity could allow growth to remain solid while inflation continued to fall.

But the minutes reflected a general concern about the state of an inflation fight that seemed well under control earlier in the year.

“Participants pointed to indicators pointing to strong economic momentum and disappointing readings on inflation in the last few months,” they said while reiterating that they would need greater confidence in continued disinflation before cutting rates.

“Some” officials said there were risks that Fed policy would be “less restrictive than desired, which could add momentum to aggregate demand and put upward pressure on inflation,” according to the minutes, the kind of logic that could be used to make the case for another rate hike.

The Fed has raised its policy rate by 5.25 percentage points since March 2022 to combat the pickup in inflation.