by Howard Schneider

WASHINGTON (Reuters) – U.S. Federal Reserve officials expressed concern last month that the decline in U.S. inflation may be slower than expected and that a prolonged period of high rates may be necessary to combat rising prices.

“Participants generally underlined their perplexity at the persistence of high inflation and expressed the opinion that recent indicators have not increased their confidence that inflation was moving sustainably towards 2%” , is written in the report, published on Wednesday, of their last monetary policy meeting on March 19 and 20, at the end of which they nevertheless confirmed their scenario of three rate cuts in 2024.

Fed officials are wondering which is the bigger risk, between monetary policy being too tight for too long and easing too quickly preventing them from returning inflation to their 2% target.

Some of them continue to say that important elements such as house prices will start to slow while “many” believe that productivity gains will help support growth while inflation slows.

The Fed’s “minutes” published on Wednesday, however, reveal a shared concern about the evolution of inflation, which nevertheless seemed well oriented at the start of the year.

“Participants noted indicators pointing to strong economic momentum and disappointing inflation data in recent months,” it is written in this report, according to which Fed officials therefore need greater certainty about the disinflation trajectory before lowering interest rates.

“Some” officials highlighted the risks associated with Fed policy being “less restrictive than desired, which could strengthen the dynamics supporting demand and foster upward pressure on inflation,” according to these minutes. This type of reasoning generally supports arguments for a rate increase.

The Fed has raised its “fed funds” rate target by 5.25 points since March 2022 to combat inflation. US central bank officials are now weighing the timing of a rate cut and their next monetary policy meeting takes place on April 30 and May 1.

The Consumer Price Index (CPI) released on Wednesday showed that inflation was higher than expected last month in the United States.

(Written by Howard Schneider, Bertrand Boucey)

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