Fed discussions signal another interest rate hike is possible this year despite low inflation

Federal Reserve Chair Janet Yellen participates in a moderated discussion at New York University’s S
Federal Reserve Chair Janet L. Yellen speaks at New York University on Tuesday.
(Craig Ruttle / Associated Press)

Federal Reserve officials generally believe that it’ll soon be time for another increase in the Fed’s key interest rate. However, a few felt any further rate hikes should be delayed until they see inflation moving higher, minutes of their last meeting revealed.

Minutes of the Fed’s Oct. 31-Nov. 1 meeting released Wednesday showed that many officials believed a third rate hike this year will likely be warranted if new data leave the medium-term economic outlook unchanged.

But “a few” officials remained worried that inflation has failed to accelerate toward the Fed’s 2% goal as expected. They suggest that the central bank needs to remain cautious in pushing rates higher.

The Fed meets again on Dec. 12-13, and private economists widely expect it will go ahead and raise rates.


The minutes of the last meeting showed there is still a division between those who are worried that the Fed might be moving too slowly amid low unemployment and those still concerned that inflation is failing to pick up.

The central bank has raised rates twice so far this year, in March and June, pushing its benchmark rate to a still-low level of 1% to 1.25%. But at three meetings since then, the Fed has left rates unchanged as officials debated the future course of inflation.

The Fed’s goal is to manage the economy to promote maximum employment and stable prices, which it defines as inflation rising at an annual rate of 2%.

For much of this year, inflation has been falling farther from the Fed’s goal. While Fed officials at first blamed temporary factors such as a price war among cellphone providers, the persistence of very low inflation has raised concerns that something more fundamental might be taking place.


In remarks at New York University on Tuesday night, outgoing Fed Chair Janet L. Yellen said that she and her colleagues are still concerned about the stubbornly low inflation rate. She called this “surprising” since the country is essentially at full employment, with the jobless rate falling in October to 4.1%, the lowest level in nearly 17 years.

“It may be that there is something more endemic or long-lasting here that we need to pay attention to,” she said.

Yellen will probably be obliged to expand on her views when she testifies next Wednesday on the economy before the congressional Joint Economic Committee.

The Fed voted 9-0 to keep its key rate unchanged at the meeting three weeks ago. In September, however, it issued quarterly projections that showed officials are still looking for a third rate hike this year.

The minutes did not reveal any discussion at the last meeting over impending leadership changes at the central bank. President Trump on Nov. 2 announced that he had chosen Fed board member Jerome Powell to replace Yellen as Fed chair.

Yellen, the first Fed leader in nearly four decades not to be offered a second term, announced on Monday that she will leave the Fed board when Powell is confirmed by the Senate as her replacement. While her term as chair ends on Feb. 3, her term on the seven-member Fed board would not have expired until January 2024.