The Federal Reserve’s minutes from its latest meeting indicate that its officials are concerned about the lack of substantial progress on achieving its inflation target. They noted that while inflation had improved slightly, it remained below the 2% target set by the Federal Reserve.
This concern is because inflation is a sign of a healthy economy, showing that goods and services are in demand, leading to price increases. But if inflation is too low, it may mean that demand is weak, which could lead to stagnation.
Moreover, the Fed officials highlighted the potential risk of inflation expectations becoming entrenched below this target. If consumers and businesses believe prices will stay low, they might cut spending, leading to an economic slowdown.
Officials also expressed worries about the potential impact that prolonged low inflation can have on the economy, particularly in periods of economic downturn.
Despite their concerns, Fed officials agreed on the need to maintain patience and keep the federal funds rate steady at near-zero levels until they see more evidence of a recovery, consistent with the Federal Reserve’s new policy framework. They iterated that the central bank’s focus remains on supporting the economy through the end of the pandemic and beyond.
