Federal Reserve officials expressed concern at their March meeting that inflation was not decreasing quickly enough, although they still anticipated cutting interest rates at some point this year. The Federal Open Market Committee voted to keep short-term borrowing rates steady, but policymakers were uneasy about the pace of inflation easing. The Fed currently aims for a benchmark rate between 5.25%-5.5%.
FOMC members agreed to maintain language in the post-meeting statement stating that they would not lower rates until they were more confident that inflation was returning to the central bank’s 2% annual target. Concerns about high inflation persistence and risks such as geopolitical turmoil and rising energy prices were discussed. Members also debated potential factors contributing to higher inflation readings in January and February.
The consumer price index in March validated these concerns, showing a 12-month rate of 3.5%, above market expectations. Following this data release, traders adjusted their expectations for rate cuts, with the first expected in September. Discussions at the meeting indicated a potential shift to a less restrictive policy stance later in the year if the economy evolves as expected.
Officials also discussed the possibility of ending the balance sheet reduction, known as “quantitative tightening.” The Fed has reduced its holdings of Treasurys and mortgage-backed securities but has not made a decision on the timeline for this process. Most market economists anticipate the reduction to start in the next month or two.
The meeting minutes highlighted the need for a cautious approach moving forward.
At their March meeting, Federal Reserve officials expressed concern about inflation not declining quickly enough, though they still expected to cut interest rates at some point this year. Despite holding short-term borrowing rates steady, policymakers were worried about inflation not easing convincingly. They cited geopolitical turmoil and rising energy prices as risks, as well as the potential for looser policy to add to price pressures. The consumer price index showed a higher-than-expected 12-month rate of 3.5% in March, validating their concerns. The Fed also discussed the possibility of ending the balance sheet reduction, with most members believing a “cautious” approach should be taken. Market pricing now implies the first rate cut to come in September, with a total of just two cuts expected this year.
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