The Federal Reserve’s latest meeting of the Federal Open Market Committee (FOMC) was held on February 23rd, 2023. The main topic of discussion was whether or not to raise interest rates by 25 basis points, with almost all participants agreeing that it would be appropriate to do so.

While participants noted that inflation had eased somewhat over the past three months, they also agreed that they needed to see more progress before being satisfied. A few participants even favored raising rates by 50 bps in order to more aggressively tackle the issue.

One of the main concerns expressed by participants was the potential for upside risks to inflation. For example, the economic reopening of China and the ongoing conflict in Ukraine could both contribute to inflationary pressures. Additionally, the tight labor market was seen as potentially contributing to upward pressure on inflation.

The word “inflation” was used a staggering 91 times in the FOMC minutes, highlighting just how significant an issue it has become for the Fed. Officials acknowledged that further interest rate hikes would likely be necessary in order to bring inflation down to their 2% target.

The housing market was also a point of concern for participants, as it had weakened for the 12th straight month in January. Sectors like housing and autos are particularly sensitive to changes in interest rates, while services are more complex due to the embedded nature of inflation in the economy.

Other economic indicators were also cause for concern. Mortgage rates were already at 7% or higher, food prices were at record highs, and companies were starting to lay off workers. Despite some progress, inflation was still not fully under control.

It’s worth noting that this situation is reminiscent of the Fed’s pivot in September of 2022, when they began to take a more aggressive stance on inflation. The revisions to CPI and PPI in December and January only serve to highlight the ongoing challenges facing the Fed as they attempt to balance economic growth with inflation control.

Conclusively, it seems clear that the Fed will need to continue to monitor inflation closely and make necessary adjustments to interest rates in order to keep it under control. As always, the path forward is likely to be complex and uncertain, but the Fed remains committed to doing whatever it takes to support the economy while also keeping inflation in check.

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