Federal Reserve Sounds Alarm on Rising Inflation Threat

Federal Reserve officials, at a recent meeting, pointed out that the risks of inflation worsening were increasing. This was a major reason why they left their benchmark interest rates unchanged.

According to the minutes of the meeting held on Jan. 28 and 29, which were released by Fed officials Wednesday, President Donald Trump’s proposed tariffs, mass deportations, as well strong consumer spending could all contribute to higher inflation this year.

The 19 Fed officials who are involved in the interest rate decisions said that they would “want to see more progress on inflation” before making any further reductions. The Fed kept its key rate at 4,3% after reducing it from a high of 5,3% in late 2012, which was a record for two decades. It is less likely, because of the Fed’s pause, that consumer borrowing costs, such as for auto loans, mortgages, and credit cards will decrease anytime soon.

Just last week the government released statistics that indicated inflation was getting worse. This led many economists to forecast only one rate cut, if any, this year. The Labor Department reported that consumer prices increased 3% from the previous year in January, up from 2.4% last September, a low for 3 1/2 years. The Fed however closely monitors a different inflation measure which shows that inflation is closer to 2,5%.

The minutes cited also a “high level of uncertainty” regarding the economy which made it appropriate that the Fed “take a cautious approach” when considering any future changes to its main interest rate.

The minutes stated that all policymakers at the Fed supported maintaining the key rate at the same level last month. The minutes show that the unanimity follows signs of growing discord in recent months, between officials who support further rate reductions and others more concerned about stubborn inflation.