Fed officials now see the U.S. labor market recovering almost completely

Washington – The U.S. labor market is nearing healthy enough levels that the central bank’s low interest rate policies are no longer needed, Federal Reserve officials concluded last month, according to the minutes of the the meeting released on Wednesday.

Fed officials also expressed concern that the surge in inflation was spreading to more areas of the economy and lasting longer than they had previously anticipated, according to the minutes.

“Many (policymakers) saw the US economy making rapid progress” toward the Fed’s “maximum employment” goal, the minutes said. “Several” officials said they believe the target has already been met.

The minutes highlighted the Fed’s abrupt pivot from what had been its policy for most of the pandemic, from keeping interest rates very low to encourage more hiring, to a rapid shift toward a raising rates to curb inflation, which has reached four-decade highs. .

Fed officials also expressed heightened concerns about inflation, a development that sent stock prices lower after the minutes were released. Bond yields also rose accordingly. The yield on the 10-year Treasury note, a benchmark for setting rates on mortgages and many other types of loans, rose to 1.7% shortly after the release of the minutes, from 1.68% just before .

“Inflation readings had been higher and were more persistent and widespread than previously expected,” the minutes said. “Some participants noted that … the percentage of product categories with substantial price increases continued to climb.

With inflation worsening and unemployment falling faster than many economists had expected, Fed Chairman Jerome Powell said after the December 14-15 meeting that the central bank was accelerating the reduction of its ultra-low interest rate policies.

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The Fed said last month that it would reduce the monthly bond purchases it has made since the spring of 2020 – which are aimed at lowering long-term rates – to twice the pace it had previously set and that would likely end those purchases in March. This accelerated timeline puts the Fed on track to begin raising its benchmark short-term interest rate as early as the first half of next year.

Fed policymakers also suggested they could raise the Fed’s benchmark short-term interest rate three times this year. It marked a significant pick-up from their September meeting, when the 18 policymakers split on whether to raise rates just once in 2022.

Even Fed officials who have long focused on keeping rates low to fight unemployment — like San Francisco Federal Reserve Chair Mary Daly and Minneapolis Fed Chairman Neel Kashkari — cite now concerns about high inflation as the reason for raising interest rates this year.

The Fed’s key rate, which has been pinned near zero for nearly two years, influences many consumer and business loans, including mortgages, credit cards and auto loans. Rates on these loans could also begin to rise later this year, although Fed policy changes may not always immediately affect other borrowing costs.

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