EconomyFederal Reserve officials were open to further US rate...

Federal Reserve officials were open to further US rate rises to quell inflation

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Some US Federal Reserve officials signalled they would be prepared to raise interest rates further if inflation became more aggressive, according to a record of their last meeting at the start of May.

“Various participants mentioned a willingness to tighten policy further should risks to inflation materialise in a way that such an action became appropriate,” said the minutes of the May 1 Federal Open Market Committee meeting, published on Wednesday.

The prospects of a rate rise have fallen since the vote, after fresh inflation data for past month came in cooler than expected. The minutes capture the extent of concerns among central bank officials at the persistence of inflation in the world’s biggest economy.

The Fed kept interest rates at a 23-year high range of 5.25 per cent to 5.5 per cent at the May 1 meeting — a decision that was unanimously backed by the voting members of the FOMC.

Rate-setters signalled in their post-meeting statement that they would keep borrowing costs higher for even longer than anticipated following a series disappointing data readings for January, February and March, when inflation remained well above the Fed’s 2 per cent target. 

“Participants discussed maintaining the current restrictive policy stance for longer should inflation not show signs of moving sustainably toward 2 per cent or reducing policy restraint in the event of an unexpected weakening in labour market conditions,” the minutes said.

Markets are pricing in between one and two rate cuts by the end of 2024 and expectations did not change after publication of the minutes. The S&P 500 closed 0.3 per cent lower, recovering some ground after slipping as much as 0.7 per cent following the release.

US voters have consistently expressed disapproval with President Joe Biden’s handling of the economy in recent months, despite a surging stock market and persistently strong labour markets.

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Biden’s rival in this year’s election to occupy the White House, Republican Donald Trump, has made the higher cost of living in recent years part of his campaign. Higher Fed rates continue to leave mortgage and other borrowing costs elevated.

However, consumer price index figures for April — published after the Fed’s rate-setting meeting in May — showed price pressures were weaker than anticipated.

The measure that the Fed uses for its 2 per cent inflation target, headline personal consumption expenditures inflation, is also expected to fall in April. That data is out next Friday.

Additional reporting by Kate Duguid in New York

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