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Sunday, February 5, 2023

The Fed ratified its intention to slow down rate increases

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But they also acknowledged that they had made “significant progress” last year in raising rates to reduce inflation.

Consequently, the central bank must now balance its fight against rising prices with the risks of slowing down the economy too much and “potentially imposing the greatest burdens on the most vulnerable groups“through higher than necessary unemployment.

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“Most of the participants emphasized the need for maintain flexibility and options when adopting a more restrictive stance“, according to the minutes, indicating that the authorities may be willing to reduce the increases to a quarter of a percentage point from the meeting on January 31 and February 1.

However, they were also open to an even higher-than-expected “terminal” rate if high inflation persists.

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In fact, the minutes emphasize explain that the decision to raise rates less should not be interpreted by investors or the general public as a weakening of commitment of the central bank to bring inflation back to the 2% target.

“The participants reaffirmed their firm commitment to bring inflation back to the 2% target set by the Committee (Federal Open Market),” the minutes state.

“Several participants stressed that it would be important to communicate clearly that a slowdown in the pace of rate hikes was not indicative of any weakening of the Committee’s resolve to achieve its price stability objective,” they added.

The Fed decided on a half percentage point rate hike at last month’s meeting, a step back from three-quarter percentage point hikes for much of 2022.

“No participant anticipated that it would be appropriate to begin lowering the federal funds rate target in 2023,” the minutes added.

Source: Ambito

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