The Federal Reserve and the European Central Bank are set to release minutes from their September meetings in the coming days, with markets looking for clues on how seriously officials viewed inflation risks at the time. Both central banks raised rates last month because of concern over rising price pressures, and the Fed minutes may show that many policymakers were worried about the inflation outlook and expected at least one more rate increase before year-end.
Since then, however, the data backdrop has shifted. Weak U.S. nonfarm payrolls on Friday, along with soft wage growth, suggested the labor market is not adding to existing inflation pressure. Earlier in the week, a government revision to PCE data also showed inflation this year had been slightly lower than previously estimated. Economists now see a high bar for an October rate hike.
Even if the minutes remind markets of the hawkish tone officials struck in September, the latest data has strengthened the case for patience. Service-sector inflation may still keep a December move on the table, but the Fed would likely need clearer evidence that price pressures are building again before raising rates once more, according to the report cited by BlockBeats from Jin10.
BlockBeats reported on Oct. 4 that the Federal Reserve and the European Central Bank will publish minutes from their September meetings in the coming days, with inflation concerns expected to stand out in both documents.
The urgency for policymakers at the two central banks to follow up on their September rate increases has eased at their respective meetings this month, affected by weak U.S. nonfarm payroll data and sharp turmoil in French financial markets.
At their September meetings, both central banks raised interest rates because of concern over rising inflation pressure. The Fed’s September minutes may show that many policymakers were deeply concerned at the time about the underlying path of prices and expected at least one more rate increase before the end of the year.
That view has since been challenged by fresh data. Friday’s nonfarm payrolls report showed job growth came in below expectations, while wage growth remained soft, adding to the case that the labor market is not fueling current inflation pressure.
Earlier this week, a government revision to personal consumption expenditures, or PCE, showed inflation this year had been slightly lower than previously estimated. Economists now believe the bar for an October rate hike is high.
Even if the minutes bring markets back to the hawkish stance officials showed in September, the data released afterward has strengthened the argument for patience. While services inflation may still leave a December hike as an option, the Fed would likely need clearer evidence that price pressure is returning before raising rates again.
The report cited by BlockBeats was attributed to Jin10.
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