The Fed wants more confidence that inflation will move towards the 2% target, according to the minutes of the meeting

Federal Reserve officials expressed concern at their March meeting that inflation was not falling fast enough, though they still expected to cut rates sometime this year.

At a meeting in which the Federal Open Market Committee again voted to keep short-term interest rates stable, policymakers also expressed doubts that while inflation was declining, it was not doing so convincingly enough. The Fed is currently targeting a benchmark interest rate between 5.25% and 5.5%

As such, FOMC members voted to continue saying in the post-meeting statement that they would not cut rates until they “became more confident” that inflation was on a steady path back to the central bank’s annual target. 2%.

“Participants generally expressed uncertainty about the continuation of high inflation and felt that recent data had not increased their confidence in a sustainable decline to 2 percent,” the minutes said.

In what apparently was a lengthy discussion on inflation at the meeting, officials said geopolitical unrest and rising energy prices remain risks that could push up inflation. They also pointed to the potential that looser policies could contribute to price pressures.

On the other hand, they cited a more balanced labor market, improving technology, economic weakness in China and a deteriorating commercial real estate market.

They also discussed the higher-than-expected inflation rates in January and February. Chairman Jerome Powell said it’s possible the bimonthly readings were caused by seasonal issues, although he added it’s difficult to say at this point. There were members at the meeting who disagreed.

“Some participants noted that the recent increases in inflation were relatively broad-based and therefore should not be dismissed as mere statistical anomalies,” the minutes said.

That part of the discussion was partly relevant, since the release came the same day the Fed received more bad news about inflation.

The consumer price index, a popular inflation gauge but not the one the Fed focuses on most, showed a 12-month yield of 3.5% in March. That was both above market expectations and an increase of 0.3 percentage points from February, giving rise to the idea that the high figures at the start of the year may not have been an aberration.

Following the release of the CPI, traders in the Fed Funds futures market have readjusted their expectations. Market prices now imply that the first rate cut will come in September, for a total of just two this year. Prior to publication, odds were in favor of the first cut taking place in June, with three in total, in line with the ‘dot plot’ projections released after the March meeting.

Discussion at the meeting showed that “nearly all participants judged that it would be appropriate to shift policy to a less restrictive stance sometime this year if the economy developed broadly as they expected,” the minutes said. “In support of this view, they noted that the disinflation process continued on a path that was widely expected to be somewhat uneven.”

In other action during the meeting, officials discussed the possibility of ending the balance sheet reduction. The Fed has eliminated about $1.5 trillion in Treasury bonds and mortgage-backed securities by bleeding up to $95 billion in proceeds from maturing bonds each month rather than reinvesting them.

No decisions have been made or indications on how the easing of what has become known as ‘quantitative tightening’ will take place, although the minutes say the roll-off would be shortened ‘by about half’ from the current pace and that the process should begin. Pretty soon.” Most market economists expect the process to begin within a month or two.

The minutes noted that members believe a “cautious” approach should be taken.