Fed Acknowledges Inflation Greater Than Expected, Plans for Possible Long-Term Effects

In minutes released Wednesday from a Federal Reserve meeting earlier this month, officials acknowledged the rise in prices across the economy has been larger than they anticipated and reiterated their belief that the inflation would be temporary, according to the Associated Press.

The meetings that took place November 2 and 3 included the vote passed by the Fed to begin retraction of the support programs introduced last year to boost the economy out of the pandemic recession.

The vote approved the Fed reducing the amount of Treasury bonds and mortgage-backed securities it had previously been purchasing to keep long-term interest rates low.

The minutes also included officials saying the Federal Reserve "would not hesitate" to adjust their actions to address inflation and the harm it could cause on the economy.

Fed Chairman Jerome Powell said the purchases are less necessary as the economy is in recovery mode coming out of the pandemic, and reducing the purchases could counter the inflation and price spikes that have occurred across the country in recent weeks.

The Fed had been purchasing $120 billion in the bonds and securities, and approved a reduction of $15 billion in November, and another $15 billion in December, with the estimation that the program would be phased out once that amount hit zero in June.

They also said the amount reduced each month could be increased or decreased depending on the current state of inflation across the economy.

Inflation has reached some of the highest levels in decades in different sections of the economy, from gas prices to the price of goods all across the grocery store. Powell and other officials said these price increases are sure to be temporary and will go back down as issues with the supply chain are resolved all over the world once the pandemic subsides.

For more reporting from the Associated Press, see below:

Jerome Powell, Federal Reserve, Inflation
Federal Reserve officials in discussions earlier this month said the central bank “would not hesitate” to take appropriate actions to address inflation pressures that posed risks to the economy. Federal Reserve Chairman Jerome Powell testifies during a House Financial Services Committee hearing September 30 on Capitol Hill in Washington. Sarah Silbiger/Associated Press File

But the Fed minutes showed a growing concern that the unwanted price pressures could last for a longer time and the Fed should be prepared to move to reduce bond purchases more quickly or even start raising the Fed's benchmark interest rate sooner to make sure inflation did not get out of hand.

"Various participants noted that the committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the committee's objectives," the minutes said.

The Feds policy rate was cut to a record low of zero to 0.25 percent in spring 2020 as the Fed focused its efforts on keeping the COVID recession from spiraling into a deeper downturn.

The Fed will next meet on December 14-15 and some private economists said the central bank may decide to send a stronger signal at that time of the Fed's intentions to address the economy's jump in inflation.

Jerome Powell, Federal Reserve, Inflation
Minutes were released Wednesday of the Fed's November 2-3 meeting where one of the main topics discussed was inflation, and the steps that could be taken by the central bank to improve it. The Federal Reserve Board logo in Washington, D.C., on May1, 2019. Mandel Ngan/AFP via Getty Images