WASHINGTON (Reuters) – Facing a still-marked economy that may need a long time to fully recover, Federal Reserve officials last month debated how to lay the groundwork for the public to accept higher inflation and also the need to ” remain vigilant “signs of stress in the heated asset markets, according to the minutes of the US central bank policy meeting of 26-27 January.
In discussions ranging from public perceptions of inflation to the vagaries of Robinhood-style retail stock trading platforms, Fed officials said they were still prepared to keep their easy monetary policy on track to help heal a job market. who still suffers from the impact of the coronavirus pandemic.
With a jump in some prices expected this spring, “many participants emphasized the importance of distinguishing between these one-off changes in relative prices and changes in the underlying trend in inflation,” according to the minutes, which were released on Wednesday.
“Several participants” said they saw such price increases on the horizon for goods “whose production has been subject to supply chain restrictions, or may be coming soon; others predicted that a possible abrupt return to normal activity levels could result in unique increases in certain prices, ”the minutes declared as Fed officials struggled to prepare for a post-pandemic reopening of the economy.
The United States remains under siege from the health crisis, but with new vaccines being distributed and inoculations running at more than 1.5 million a day, the economy is expected to heat up further this year.
Leading food producers said this week that they are considering possible price increases, and data on Wednesday showed that the producer price index for final demand increased last month in more than a decade.
Fed officials, determined to restore the labor market and push inflation to 2% persistently, plan to ignore all of that.
In an attempt to explain why for a public typically sensitive to the prices of basic goods such as food and energy, Fed officials emphasized the need to focus on the differences between “temporary factors that affect inflation” and more systemic changes in prices than the bank central tries for the target, the minutes showed.
In a debate over the end of the pandemic game, others were concerned that stress might bubble up in the financial system.
“Some participants stated that it would be important to remain vigilant to ensure that the banking system remains strong and resilient”, with “some participants” observing the boom in initial public offerings of shares and the increase in asset values ”that may have been affected by investors retailers trading through electronic platforms. “
GAME STILL ON
While not mentioned by name in the Fed’s minutes, the dramatic rise and fall of video game retailer GameStop and other actions called “memes” were on the minds of lawmakers. It is the subject of a congressional hearing this week, and has also raised concerns that the Fed’s loose money policy, used to fuel the economy during the pandemic, could fuel a damaging asset bubble.
Likewise, the huge federal stimulus provided to the economy last year and which is expected to grow even more in the coming months has been instrumental in keeping families afloat, but it also poses “upside risks” if consumers spend more freely than expected in a reopened economy, the minutes noted.
After a severe winter in which coronavirus infections increased, but also witnessed the launch of new vaccines, some analysts argued that the Fed may be surprised if things improve faster than anticipated.
“In just another month, another 50 million people are likely to receive the initial injection,” of the currently approved two-dose COVID-19 vaccines, said Bob Miller, head of BlackRock’s Americas Fundamental Fixed Income. “In addition, we are about to get another round of stimulus to fiscal policy … This confluence of factors could force the Fed’s hand.”
For now, however, the prize is to keep support for the economy in place.
“Participants noted that the economy was far from reaching the Committee’s broad and inclusive goal of maximum employment and that even with an accelerated pace of improvement in the labor market, reaching that goal would take some time,” said the minutes.
The Fed made few changes to its policy statement at the January meeting. He is scheduled to release his next policy statement and new economic projections on March 17.
The US central bank has pledged to keep its main overnight interest rate close to zero until inflation is “on track to moderately exceed” its 2% target and the labor market is approaching “maximum employment” – a promise that will likely keep rates low for years to come.
In addition, the Fed has pledged to continue buying $ 120 billion in government bonds a month until there is “substantial progress” toward inflation and employment targets.
Given the faltering progress of the economy in recent months, this could mean that the Fed’s policy remains largely on hold for a long period, and officials in recent public statements have emphasized that they are in no hurry to abandon the way of fighting the crisis.
“We are going to be patient,” Fed Chairman Jerome Powell said at a news conference after the end of last month’s policy meeting. “We are going to seek inflation moderately above 2% for some time … The way to gain credibility in this is by actually doing it. And that is what we are planning to do. “
Howard Schneider and Ann Saphir reporting; Editing by Andrea Ricci and Paul Simao