The minutes from the Federal Reserve's last policy meeting are expected on Wednesday to detail the breadth of debate at the U.S. central bank over how much further interest rates may need to rise to slow inflation and cool an economy that has remained stronger than expected despite monetary tightening.
The central bank uses the Personal Consumption Expenditures price index in setting its 2% inflation target. Economists polled by Reuters estimate the PCE excluding more volatile food and energy components rose at a 4.3% annual pace last month, a slight improvement from the 4.4% jump in December. But on a month-to-month basis, that core inflation measure is expected to have actually increased to 0.4% from 0.3% in the prior period.
Bullard has not yet shifted his own rate outlook higher because of the recent data, and still thinks a policy rate in the range of 5.25% to 5.50% will be adequate to keep inflation falling through this year. Most do not see the Fed returning to larger half-percentage-point increases, but they do see the central bank moving rates higher than previously anticipated and leaving them at an elevated level for longer as well - a change in sentiment likely welcomed by Fed officials concerned that market pricing had understated their resolve in bringing inflation back to the 2% target.The minutes, scheduled to be released at 2 p.m.
While there was little disagreement last year over what the Fed needed to do as inflation raced to a 40-year high, the central bank is now in a more two-sided debate "to find out to what extent the resilience of the economy thus far reflects time lags on monetary tightening versus a higher short term neutral rate" needed to cause businesses and households to slow spending, analysts for ISI Evercore wrote in an analysis ahead of the release of the minutes.
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