OPINION
Market Rating Before FOMC MeetingJan 31
FOMC Minutes Signal a 75-Point Rate Increase
At its July meeting, the FOMC increased its federal fund’s target by 75 basis points to the 2.25-2.50 percent range. In the statement; It was emphasized that inflation continued to rise, reflecting the supply and demand imbalances caused by the coronavirus pandemic and the rising food and energy prices as a result of the Ukraine war, as well as broader-based price pressures. It was also reported that the shrinking of the balance sheet will be accelerated in September as planned, and within this framework, mortgage-backed securities will be reduced by $35 billion per month and Treasury papers by $60 billion per month.
In the published meeting minutes; The committee stressed that the Russia-Ukraine war continues to cause humanitarian and economic difficulties. They underlined that rising energy prices, as well as coronavirus uncertainties in China, could worsen supply chain disruptions. And the members agreed that this weighed on global economic activity by putting additional pressure on inflation.
The text emphasizes that members are wary of inflation risks, there is little evidence that inflationary pressures are easing, and they agree that resolving this situation will take time. It was noted at the July meeting, all participants agreed that a 75 basis point rate increase was appropriate.
In the minutes, which emphasized that rate hikes will continue until inflation drops significantly, some FOMC Members underlined that the policy rate should reach a sufficiently restrictive level to control inflation and stay there for a while.
Officials said inflation remained unacceptably high, well above the long-term 2 percent target, and was likely to remain for a long time. The article also stated that supply bottlenecks continue to contribute to price pressures.
While some participants stated that the strong labor market stance may delay the slowdown in economic activity, it was also stated that an upward revision in growth due to labor market optimism increased the possibility of an upward revision.
Many officials were quoted as saying that the latest figures on inflation expectations are consistent with long-term expectations anchored at 2%, that excessive tightening should be avoided, and that it would be appropriate to slow down the rate of increase in interest rates after a certain point.
Finally, Council Members reiterated the appropriate tightening of monetary policy and the eventual alleviation of supply and demand imbalances. It was stated that they expect to bring inflation back to levels consistent with the Committee's long-term target and that they expect long-term inflation expectations to be well fixed.
