Fed’s appetite for further easing, higher inflation in focus

The U.S. Federal Reserve last month signaled that interest rates are likely to stay at zero through 2023, vowing to wait on rate hikes until inflation reaches 2% and is set to rise moderately above that level for a time. How much above 2%, for how long, and how the central bank might speed the process forward – the new guidance doesn’t say.

Minutes of the Fed’s September meeting to be published Wednesday at 2 p.m. EDT (1800 GMT) should provide a window into the Fed’s internal debate on those issues and, perhaps, some new answers on what it will mean in practice. Fed Chair Jerome Powell warned Tuesday that the outlook for the U.S. economy is “highly uncertain,” and that too little policy support could lead to more household and business insolvencies and “recessionary dynamics” where a weak recovery feeds on itself. The minutes may show how widely shared that concern is.

Fed policymakers appear divided on how high the Fed should try to push inflation, which for years has failed to meet the Fed’s 2% target and is expected to end this year well below that level. Chicago Fed President Charles Evans wants to get core inflation up to 2.5%, and for it to stay there for a while. Kaplan, by contrast, said last week he would be uncomfortable with 2.5% inflation, and worries about excess risk-taking with rates at zero for too long.

Fed’s appetite for further easing, higher inflation in focus, Reuters, Oct 7