By Martin CRUTSINGER, AP Economics Writer
WASHINGTON (AP) – Newly released tapes show that many Federal Reserve officials had concerns in late 2015 about whether they were making a mistake in raising a significant interest rate for the first time in nearly a decade.
Scripts from their discussions released on Friday suggest that the main concern was whether the Fed was working to raise rates ahead of time, given how low inflation was.
Finally, the Fed unanimously approved a quarter-point increase in its policy rate and in December 2008 the central bank recorded it as low as 0 to 0.25% at the height of the financial crisis.
During their debate over the change, many officials expressed concern that the small rate hike was going on, even though inflation was below the Fed’s 2% target for the past six years.
The Fed manages interest rates to achieve two goals – keeping inflation under control while promoting maximum employment. It raises rates to slow the economy if inflation is rising too fast and it cuts rates to boost the economy if the unemployment rate is too high.
Fed Chair Janet Yellen, tapped by President-elect Joe Biden to be Treasury Secretary, argued for a small initial rate hike at the time, stating that a sharp drop in oil prices in 2015 led to a drop in inflation The Fed’s inflation target is running below 0.5%. But she said that as oil prices rose again, she was “reasonably confident” that inflation would reach the Fed’s 2% target in the next two to three years, and for this reason a rate hike The short initial step was warranted.
However, falling cell prices for such items in 2016 kept cell phone inflation down and since that time, inflation has continued below the Fed’s 2% target.
Yellen noted that unemployment was down 5%, 0.7 percentage-point at the end of 2015, where it was at the beginning of the year and businesses were beginning to talk about rising salary pressures. As it turned out, unemployment continued to decline, down from 50% to 3.9% in February 2020 before the epidemic-induced recession began.
Daniel Tarulo, a member of the Fed board at the time, said he was going with the December 2015 rate hike, but mainly because he believed the position taken by the Fed chair for Fed board members It was important to agree with.
Tarulo said, “The liftoff moment after seven years would be a particularly bad time to enter into a dissent and thus put the leadership position of the chair at risk.”
Fed board member Lyle Brainard also expressed skepticism about the need for a rate-lowering inflation, but said she would go with a modest increase.
While winning the vote, Yellen stated that she was conscious of opposing the idea, jokingly saying at the end of the discussion that any Fed official who wanted her subsequent news conference and “looked at me peek”. Could do it.
As it slashed the quarter-point increase in the Fed’s benchmark rate from 0.25% to 0.5% in December 2015, another rate hike was not followed for a full year, when another quarter- The point was increased. 2016. That increase was followed by a three quarter-point rate increase in 2017 as economic growth increased and the unemployment rate declined further.
The Fed raised rates four times in 2018, after being replaced by Yarn Powell as Fed chair by President Donald Trump. Trump launched an unprecedented attack on the Fed’s rate hike, anticipating a negative impact on economic growth, broken by previous presidents’ practice to honor the Fed’s independence.
Started in 2019, the Fed began cutting rates and after the pandemic pushed the country into recession in 2020, the Fed lowered its benchmark rate from 0 to 0.25%, where it followed the 2008 global crisis Was.
The Fed released minutes that summarized their closed-door discussions with a three-week break after each meeting but did not release tapes of meetings until five years had passed.
Copyright 2021 The Associated Press. All rights reserved. This content may not be published, broadcast, rewritten or redistributed.