Fed minutes: it’s better to make too many efforts than too little

Insufficient measures to combat inflation in the United States are likely to affect the country’s economy more than aggressive policies for its reduction. This was reported by representatives of the Federal Reserve (Fed) at the last session in September.

As the minutes showed, the regulator remains hawkish about further monetary tightening. Another interest rate hike of 75 basis points is expected, despite hints from officials that the pace of future increases would slow down. 

In fact, the Fed's restrictive measures were necessary for the U.S. economy. Representatives also noted premature monetary easing to be dangerous, based on historical experience. At the same time, the Fed's objective is to bring inflation down to the target.

Officials believe the rate of inflation is still "extremely high”. Earlier, the release of national inflation data exceeded experts' expectations, as the decline was slower than forecasts. Representatives also stressed the increased pace of price growth in the US, particularly for major categories of goods, excluding food and energy costs. 

The labor market remains "constrained," making it necessary to ease monetary policy in order to relieve rising pressure on wages, along with prices. However, some officials claim the labor market is moving toward equilibrium. This is due to lower labor turnover and increased labor force participation. The transition is expected primarily by reducing the vacancies’ number and slowing the job creation rate. 

According to regulators, the areas being touched by rising interest rates are real estate and fixed asset investment. Currently, other sectors of the economy haven’t been affected.

As monetary policy tightens further, the Fed may slow rate hikes as it would assess the effectiveness of implemented measures to combat inflation.

With the minutes reporting, once the discount rate reaches a desired level, the regulator will continue its maintenance for a "specified period of time", until there is "convincing" evidence that inflation is on track to return to the 2% target. 

The U.S. economy is expected to be below trend in 2022 and the next few years. There is a possibility of rising unemployment due to higher interest rates. Fed officials also noted global headwinds in other economies, including a risk of recession in Europe and a slowdown in China.