FOMC minutes reveal concerns about persistent inflation

The Federal Open Market Committee (FOMC) Wednesday released minutes from its June meeting that revealed participants agreed that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures persisted. In addition, participants judged an increase of 50 or 75 basis points would likely be appropriate at its July meeting. During its June meeting, the FOMC announced its largest rate hike since 1994, raising the federal funds target rate by 75-basis points to a range of 1.5 to 1.75 percent.

Participants also noted the imbalance between supply and demand across a wide range of product markets was contributing to upward pressure on inflation and many participants raised concerns that longer-run inflation expectations could be beginning to drift up to levels consistent with the 2 percent objective. Their concerns are that if inflation expectations were to become unanchored, it would be costlier to bring inflation back down to the FOMC’s objective.

“The FOMC is clearly fearful of a scenario where persistent high inflation raises inflation expectations,” said NAFCU Chief Economist and Vice President of Research Curt Long. “The median committee member expects the fed funds rate target to increase to 3.4 percent by the end of the year.

“Judging by the minutes, it would take a major deflationary impulse for the committee to reconsider the present course for interest rates at any point in 2022,” added Long.


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