Fed saw evidence of a slowing economy at its last meeting - Advisor's Edge

Slower growth, they noted, could “set the stage” for inflation to gradually fall to the central bank’s 2% annual goal, though it remained “far above” that target.

In both June and July, the Fed sought to curb high inflation by twice raising its key rate by an unusually large three quarters of a percentage point. At their meeting last month, the policymakers said it might “become appropriate at some point to slow the pace of policy rate increases.”

The U.S. central bank had been slow to respond to a resurgence of inflation in the spring of 2021 as the economy roared back from the 2020 pandemic recession. Chair Jerome Powell characterized high inflation as merely “transitory,” mainly a result of supply chain backlogs that would soon unsnarl and ease inflationary pressure. They didn’t, and year-over-year inflation hit a 40-year high of 9.1% in June before edging lower last month.

So the Fed raised its benchmark rate at its meeting in March and again in May, June and July. Those moves have raised the central bank’s key rate, which influences many consumer and business loans, from near zero to a range of 2.25% to 2.5%, the highest since 2018.

Powell has said the Fed will do what it will take to tame inflation, and more rate hikes are expected. But many economists worry that the Fed will overdo it in the other direction by tightening credit so much as to trigger a recession.

Concerns about a potential recession have been eased, for now, by the ongoing strength of the job market. Employers added a robust 528,000 jobs last month, and the unemployment rate has hit 3.5%, matching a half-century low that was reached just before the pandemic erupted in 2020.

In the minutes released Wednesday, the Fed’s policymakers acknowledged the strength of the job market. But they also noted that hiring tends to be a lagging indicator of the economy’s health. And they pointed to signs that the job market might be cooling, including an increase in the number of Americans filing for unemployment benefits, a drop in Americans quitting their jobs and a reduction in job openings.

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Fed saw evidence of a slowing economy at its last meeting - Advisor's Edge
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