Market experts chose to focus on the inflation part.
Going above the so-called neutral rate “is contingent [on] keeping inflation from overheating,” wrote Jim Caron, managing director at Morgan Stanley Investment Management. “Only” a few members thought policy would need to become restrictive, noted Paul Ashworth, chief U.S. economist at Capital Economics, who added that most members want to hike because of inflation concerns. Robert Frick, corporate economist with Navy Federal Credit Union, also noted that accelerated rate hikes would be necessary “to head off the possibility of inflation.”
The Fed has come under fire, from President Donald Trump and elsewhere, for continuing to increase rates even in the face of little inflation pressure. The minutes noted that most gauges show inflation rising around 2 percent or a little more, with little expectation that it will continue to heat up.
But Fed officials are concerned about more than price and wage pressures.
Chairman Jerome Powell, speaking at the Fed’s annual retreat in Jackson Hole, Wyoming, in August, made clear his concerns. Powell said then that by the time inflation shows up in the economy, it’s often too late to do anything. Instead, he said it usually shows up first in financial markets, then spreads.
“Whatever the cause, in the run-up to the past two recessions, destabilizing excesses appeared mainly in financial markets rather than in inflation. Thus, risk management suggests looking beyond inflation for signs of excesses,” he said then.