The Fed says surprisingly weak inflation is 'transitory'

  • The Federal Reserve plans to maintain a patient approach to monetary policy but sees softer than expected inflation levels as temporary, minutes out Wednesday showed.
  • Officials have signalled interest rates would remain steady for the rest of the year.
  • The meeting came before dramatic escalations in the trade war between Washington and Beijing last week.
  • View Markets Insider’s homepage for more stories.

The Federal Reserve plans to maintain a patient approach to monetary policy but sees softer-than-expected inflation levels as temporary, according to the minutes out Wednesday.

“At least part of the recent softness in inflation could be attributed to idiosyncratic factors that seemed likely to have only transitory effects,” the minutes from its policy meeting that ended May 1 said.

The Federal Open Market Committee last increased its benchmark interest rate by a quarter percentage point in December, bringing it to a target range of between 2.25% and 2.5%.

Officials have since dimmed their outlook for the economy and signalled their three-year hiking campaign may be coming to an end as global growth cools.

While key parts of the US economy fared better than expected in the first quarter, inflation readings have continually come in well below the Fed’s target of 2%.

Financial markets remained lower after the minutes were released at 2 p.m. ET. An increasing number of investors have bet that the Fed may slash interest rates in the coming months.

“The language is vague enough that market watchers are likely going to hear what they want to hear, but a sober analysis is that we won’t see any rate cuts soon,” said Mike Loewengart, the vice president of investment strategy at Etrade.

But economists are less convinced that a rate cut is on deck, especially as officials forecast that price changes will pick up. In a recent Wall Street Journal survey, economists were split down the middle on expectations for the next policy adjustment.

“There are reasons to think those are transitory and will turn around,” Powell told reporters at a press conference following the latest Fed policy meeting.

It’s notable, however, that the meeting came before dramatic escalations in the trade war between Washington and Beijing last week. Negotiations stalled after both sides increased tariffs on each other’s products, setting the stage for prolonged tensions.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.