The Federal Reserve is staying on its current path, according to the minutes from their recent meeting in April. (FR)
Officials recognized the current spike in prices, but still believe them to be transitory…
- “…noted that the expected surge in demand as the economy reopens further, along with some transitory supply chain bottlenecks, would contribute to PCE price inflation temporarily running somewhat above 2 percent. After the transitory effects of these factors fade, participants generally expected measured inflation to ease.”
Officials are mostly positive about our economic recovery, but are concerned it could be lopsided…
- “participants remarked that the pandemic continued to pose downside risks to the economic outlook and noted the potential for an uneven recovery in light of new virus strains and potential hesitancy regarding vaccination.”
Unless something drastically changes officials feel they are on the right path and current plans will continue. However, there was some disagreement on what could cause a possible shift in policy…
- “Participants judged that the Committee’s current guidance for the federal funds rate and asset purchases was serving the economy well. Participants also noted that the existing outcome-based guidance implied that the path of the federal funds rate and the balance sheet would depend on actual progress toward reaching the Committee’s maximum-employment and inflation goals.”
- “In particular, some participants emphasized that an important feature of the outcome-based guidance was that policy would be set based on observed progress toward the Committee’s goals, not on uncertain economic forecasts. However, a couple of participants commented on the risks of inflation pressures building up to unwelcome levels before they become sufficiently evident to induce a policy reaction.”
Inflation hawks are obviously concerned about the damage uncontrolled inflation could do to our economy. However, there may be some early signs that Fed officials could be right. Bloomberg reported on Tuesday that lumber had its “seventh straight session of falling prices for the futures contract, marking the longest streak of declines since September.” Lumber did finish up on Wednesday snapping its losing streak, but if these downward moves continue it could give the Fed more confidence its projections are correct.