Nick Timiraos of The Wall Street Journal reports that some officials have highlighted the risks of ‘an overly restrictive stance’ on interest rates as inflation cools. He continues:
Federal Reserve officials thought they were done raising interest rates when they decided last month to hold them steady, but minutes of the meeting didn’t reveal a meaningful debate about when to start lowering rates.
While nearly all officials anticipated policy rates would eventually be lowered before the end of this year, the written account of the Dec. 12-13 meeting, released Wednesday, underscored heightened uncertainty over how to navigate the next interval of monetary policy after the most rapid increase in interest rates in four decades.
Some policymakers revealed unease about leaving rates too high for too long. They highlighted “the downside risks to the economy that would be associated with an overly restrictive stance,” the minutes said. They flagged the risk that a slowdown in the labor market could “transition quickly from a gradual easing to a more abrupt downshift in conditions.” […]
Powell also repeated his view that officials could lower rates next year simply because inflation is well on its way to their 2% target. Holding rates steady as inflation falls would lead inflation-adjusted or “real” rates to rise, which the Fed doesn’t want. Officials could lower nominal rates simply to prevent real interest rates from turning too tight.
“You wouldn’t wait to get to 2% [inflation] to cut rates,” Powell said. “It would be too late.”
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