Fed officials now see US labor market close to full recovery

Federal Reserve policymakers at a meeting last month said the U.S. labor market was almost at levels healthy enough that the central bank’s low interest rate policies were no longer needed, according to the minutes of the meeting published on Wednesday.

Fed officials also expressed concerns that the spike in inflation was spreading to more areas of the economy and would last longer than expected, according to the minutes.

For both of these reasons, Fed Chairman Jerome Powell said after the December 14-15 meeting that the central bank was accelerating the reduction of its ultra-low interest rate policies.

Fed policymakers have also suggested they could hike the Fed’s short-term benchmark interest rate three times this year. This marked a significant recovery from their September meeting, when the 18 policymakers split over whether to hike rates just once in 2022.,

The minutes underscored the Fed’s strong pivot to what its policy had been during most of the pandemic, moving from keeping interest rates very low to encourage more hires, to a rapid move towards a rate hike to control inflation, which has reached four-decade highs. .

Even Fed officials who have long focused on keeping rates low to fight unemployment – like San Francisco Federal Reserve Chairman Mary Daly and Minneapolis Fed Chairman Neel Kashkari – now cite the concerns. regarding high inflation as the reason for raising interest rates this year.

After its meeting last month, the Fed said it would cut the monthly bond purchases it has made since spring 2020 – which are aimed at lowering long-term rates – to double the pace it previously had. fixed and will likely end these purchases in March. This accelerated schedule puts the Fed on track to start raising its benchmark short-term interest rate as early as the first half of next year.

The Fed’s policy rate, now close to zero, influences many consumer and business loans, including mortgages, credit cards and auto loans. The rates on these loans could also start to rise later this year, although Fed policy changes do not always immediately spill over to other borrowing costs.

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