A number of the Federal Reserve’s policymakers signalled in their latest meeting that they were preparing to lift rates again, even as a divided body of US rate-setters continued to agonise about the risks posed by persistently soggy inflation.
Faced with above-trend growth and a labour market that was operating at or beyond full employment, many Fed policymakers said in their October 31 to November 1 meeting that another increase in the Fed’s target range would probably be needed “in the near term” if the economy stays on track.
However that was not the unanimous view, and minutes to the latest meeting revealed a central bank that is still struggling to get to grips with the implications of sub-target inflation. Many policymakers warned inflation may remain below target for longer than they had expected, as they flagged up the risk of persistent drags on price growth. A number said they were worried a fall in longer-term inflation expectations could make it harder to return inflation to target.
Weighing into the debate over further rate rises is the risk that the long spell of low interest rates could stoke up excesses in financial markets. Several participants in the latest meeting flagged up worries about the issue, expressing concerns about “a potential build-up of financial imbalances”.