At the most recent Federal Reserve meeting, officials expressed unease with the pace of inflation, with indications that further rate hikes may be needed unless conditions change. This discussion led to the quarter point rate hike speculated to be the last of this cycle. Most members felt that more tightening would be needed to bring inflation down to the Committee's 2% objective. The increase raised the federal funds rate to its highest level in 22 years, which is now targeted between 5.25%-5%. Although various members had since declared further hikes could be unnecessary, the minutes of the meeting recommended caution. Incoming data will be taken into account in order to decide future policy
At the meeting, it was agreed that inflation was "unacceptably high," but there were also tentative signs that it could be decreasing. Almost everyone was in favor of raising the rate, although a few members thought they should wait and see how their previous decisions affect the economy. Uncertainty was expressed about the combined effects of all the recent monetary policy changes, and it was predicted that the economy would slow down and unemployment increase slightly. Contrary to earlier forecasts, it was now thought that issues with the banking industry would not bring about a recession this year.
There was concern about potential issues concerning commercial real estate. Particular worries included potential for a sharp decrease in CRE valuations which could impact banks and other financial institutions who owe CRE, such as money market funds and the like. During the discussion about policy, members discussed the risks of loosening too much and causing an increased rate of inflation against the risks of tightening too quickly and sending the economy into a slump. Data shows that while the inflation rate is still below the central bank's target rate of 2%, it has improved since June 2022 when it was at 9%. Therefore, the worry is that the central bankers will be too quick to declare victory and repeat thecritical errors of the past. GDP has increased at a rate more than 2% in the first half of the 2023 and the unemployment rate is around its lowest level since the late 1960s. In spite of this, Fed officials have recently indicated that rate cuts are unlikely this year, but increases could be over. Market pricing is set on the belief there will be no hikes before the end of the year.
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