Federal Reserve officials at their April meeting said that a continuation of strong economic growth would warrant consideration of plans to tighten monetary policy.
“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” minutes of the meeting released Wednesday said.
Prior to the release of the minutes, similar sentiments were expressed by a number of Fed officials in speeches around the country. The officials indicated that they are watching closely economic developments and will be ready to tighten policy when necessary.
Atlanta Fed President Raphael Bostic made similar remarks in an interview Wednesday with Bloomberg television.
“We are going to have to be very nimble in terms of our monitoring of the economy and our policy responses,” Bostic said.
Fed Governor Randal Quarles, testifying Wednesday before a House panel, said that officials expect inflation to be “temporary even if significant,” echoing Fed chairman Jerome Powell’s message that inflation would rise this year but that would be “transitory.”
The minutes suggest Fed officials expect inflation to be above its two percent target this year but to fall below the target next year. Quarles also reiterated the message that the central bank had the ability to rein in inflation if it proved to be stronger and longer-lasting than expected.
But Quarles also warned of the risks of acting too quickly to stave off inflation.
“But I do think that if we were to try now to stay ahead of the inflation curve we could end up significantly constraining the recovery,” Mr. Quarles said.
The Fed at the April meeting kept its benchmark rate at a record low of 0 to 0.25 percent, where it had been since March 2020 when the Fed slashed rates after the pandemic hit and millions of people were losing their jobs. Fed officials also voted to continue purchasing at least $120 billion of Treasury and mortgage bonds each month, a program Fed officials say is intended to support the smooth operation of the bond market and the supply of credit to businesses and households.
The Fed discussions took place on April 27-28 and the minutes were released with the customary three-week delay. That means the minutes do not reflect the most recent economic data that showed hiring had unexpectedly slowed, supply constraints were hindering businesses, and inflation has surged to its fastest monthly rate since 1981.
Even still, a number of participants in the discussions expressed the view that supply chain bottlenecks and input shortages that were pushing prices higher may not be resolved quickly and could end up putting “upward pressure on prices beyond this year.”
Some officials said that in some industries, the supply chain disruptions appeared to be “more persistent than originally anticipated.”
Despite these concerns about price increases, Fed officials said that longer-term expectations about inflation remained well anchored at levels broadly consistent with achieving the goal of annual price increases hitting the Fed’s two percent target after a short period when they rose above that level.
The Fed will next meet on June 15-16 against a back-drop of rising concerns in financial markets about recent price jumps that signal inflation, after years of being dormant, may have started to accelerate markedly.
The government reported last week that consumer prices jumped in April by 0.8 percent, the largest monthly gain in more than a decade with prices rising across a wide range of products from food to used cars. In the week prior, the Labor Department said only 266,000 Americans had been added to U.S. payrolls in April, far short of the one million economists had expected.
Fed Chairman Jerome Powell and other Fed officials have continued to insist that the inflation seen now will prove to be transitory, a product of a re-opening economy and supply bottlenecks. They believe that in a few months, price gains will slow to a more sustainable pace.
However, some analysts are concerned that the Fed’s insistence on keeping interest rates at such low levels could lead to an inflationary surge that will be hard to bring under control. But Powell and other officials contend that if inflation does accelerate, they have the tools to bring it back under control.