Officials cited strong hiring as the reason for raising interest rates, according to Fed minutes

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WASHINGTON (AP) — Federal Reserve officials suggested at their latest meeting that continued strong hiring may be keeping inflation high, and that they were the main cause of the rise in inflation. interest rates are higher this year than they expected.

In the minutes of their mid-December meeting released Wednesday, officials noted that the slowdown in rate hikes — from four consecutive increases of three-quarters of a point to half a point — was “not a sign of weakness.” determined to return inflation to the target level of 2%.

SEE: Federal Reserve warns of another rate hike in 2023 after raising interest rates again

According to the minutes, the smaller increase did not “suggest that inflation was on a sustained downward path”. Instead, fears of higher-than-expected inflation remained, officials said.

The report reflected fears that Wall Street traders were overly optimistic that the Fed would soon stop raising rates and even reduce them later this year. Such a “misperception,” the minutes said, would complicate the Fed’s efforts to reduce inflation. This happens if bullish traders drive stocks higher and lower bond yields, hampering the Fed’s efforts to cool the economy.

Overall, the minutes showed Fed officials were willing to keep rates high to stifle inflation and took little comfort from inflation falling from its peak of 9.1%. in June and November it was 7.1%. The dovish message sent the stock market tumbling after the Fed announced its latest rate hike and predicted more hikes this year than expected.

Ryan Sweet, chief U.S. economist at Oxford Economics, said: “The minutes underscore that the Fed is reducing inflation, which threatens to hurt the labor market and the economy as a whole.

In a press conference following last month’s meeting, Fed Chairman Jerome Powell acknowledged that inflation was under control in October and November. But he noted that “substantial evidence” of lower inflation would be needed to stop the Fed from raising rates.

“We have a long way to go to achieve price stability,” Powell said.

READ MORE: A Federal Reserve official has suggested that a significant rate hike may be necessary

Higher Fed rates have pushed up the cost of mortgages, auto loans and other consumer and business debt.

In a series of quarterly economic forecasts released after the Dec. 14 meeting, officials said they plan to raise their benchmark rate to 5.25% from 5% and hold it there until the end of the year. That was a quarter of a point higher than financial markets had expected.

Policymakers also expected inflation to be higher than expected in September this year, despite signs of a slowdown in price growth in recent months. Officials forecast inflation at its favorable rate of 3.1% by the end of this year, up from the 2.8% forecast in September.

All 19 Fed policymakers were unanimous in predicting higher rates this year, with 17 forecasting rates at least 5% to 5.25% and only two slightly lower.

Many economists have warned that aggressive rate hikes by the central bank will push the economy into recession this year. Fed officials predicted last month that the unemployment rate would rise to 4.6% this year from 3.7%, which usually coincides with a recession.

However, so far the labor market has remained stable. The government said on Wednesday that the number of jobs available in November remained close to the previous month’s high, a sign that companies are still determined to hire despite an 18-month high in inflation and rising interest rates.

READ MORE: The Federal Reserve is set for another big rate hike, but hints at a reversal soon

Also on Wednesday, Federal Reserve Bank of Minneapolis President Neel Kashkari said he supports raising the Fed’s interest rate to 5.5% from around 5.25%. That’s more than most of his teammates would like, and a full point above his current level.

“I think it is too early to say definitively that inflation has peaked, but we are seeing growing evidence that it may have,” Kashkari wrote on the Fed’s website. From Minneapolis. “However, I think it would be reasonable to continue to raise rates, at least in future meetings, until we are confident that inflation has peaked.”

Kashkari also said he favors keeping the Fed rate at 5.4% to gauge the impact of higher rates on the economy. But he said he would favor a “potentially much higher” Fed rate hike if progress on reducing inflation slows and delays further price increases.

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