Federal Reserve officials have agreed that an increase in the unemployment rate is the cost to bring down inflation, according to September FOMC meeting minutes released on Wednesday. They added that “taking too little action to bring down inflation likely outweighed the cost of taking too much action.”
The minutes highlighted the Fed’s commitment to continue tightening monetary policies. The approach adopted by the Fed includes raising borrowing costs for households and businesses, which is expected to slow down the economy and tame inflated consumer prices.
A number of Fed officials introduced their assessments of the recent interest rate hikes, saying they were necessary to achieve the 2 percent inflation rate goal. Several officials also underlined the importance of calibrating the pace of the hikes to avoid “significant adverse effects” on the whole economic structure.
The Fed has increased interest rates five times since March this year, boosting the short-term rate between 3 and 3.25 percent, the highest since the 2008 financial crisis. In the September meeting, the Fed raised the interest rates by 75 basis points for the third consecutive time. The committee reportedly plans to hike the rates in the next two FOMC meetings, continuing with a 75-basis-points increase at the beginning of November.
The continuous hikes will eventually stop at some point. However, the Fed plans to keep the rate at the current peak longer to see the effects on the market.
Despite the Fed’s efforts, the latest inflation data showed negligible improvement, with the current inflation rate at 8.3 percent. September job reports released last week also showed that the unemployment rate decreased to 3.5 percent, falling below the Fed’s expectation and signaling a robust job market.
During the meeting, some officials raised concerns regarding the vulnerability of the U.S. economy due to the grim financial situations in Europe and China. A potential energy crisis is looming over Europe due to the ongoing Russian invasion of Ukraine. Meanwhile, the Chinese economy is experiencing “a loss of momentum” over the country's tight pandemic policy.
Earlier this week, former Fed leader Ben Bernanke urged the bureau to observe signs of a deteriorating global economy. He said that issues in other parts of the world could worsen the financial situation in the U.S.
Effects of hawkish policy
The hawkish fiscal policy implemented by the Fed has taken effect on the U.S. stock market and global economy.
Following the publication of September's meeting minutes, major indices in the stock market closed at lower positions. There have been declines in the stock market due to increasing fears of a recession among investors.
The global economy also suffers from the tight policy as it results in the increasingly strong U.S. greenback. This year, the euro saw parity against the U.S. dollar for the first time in decades. The sterling also hit its all-time low against the greenback last month.
The crypto industry also bears the brunt of macro-fiscal policies adopted by the Fed. Most crypto tokens experienced significant declines in valuation this year, leading to a number of crypto companies declaring bankruptcies and investors losing their money.
Stakeholders are expecting the release of the September consumer price report on Thursday morning, which is expected to show a decline in the overall inflation rate. Core inflation, however, is projected to grow to the highest in 40 years.