The minutes from the Federal Reserve's July 26-27 meeting, released on Wednesday, indicate that officials expect the economy to grow in the latter half of 2022, albeit at a slower pace due to the effects of the increased rates. Various sectors, including housing, consumer spending, business investment, and factory production, have already shown signs of slowing down after a robust performance in 2021.

Officials believe that this slowdown could pave the way for a gradual reduction in inflation, bringing it closer to the central bank's target of 2% annually, although it currently remains well above that goal. The policymakers have expressed their intent to continue raising rates as necessary to temper economic activity.

In both June and July, the Federal Reserve raised its key rate by three-quarters of a percentage point in an effort to combat rising inflation. Last month, officials hinted at the possibility of slowing down the pace of these increases in the future.

It remains to be seen whether the Federal Reserve will opt for another three-quarter-point hike or a smaller half-point increase at its next meeting scheduled for September 20-21. Since the last meeting, the economy has exhibited mixed signals, with strong job growth, a struggling housing market, and a surprising drop in inflation.

Jamie Cox, managing partner for Harris Financial Group, commented that while the minutes do not suggest a shift in policy, the rate hikes are effectively reducing demand and inflation. Cox anticipates a potential reduction in the pace of rate increases moving forward.

The Federal Reserve has had to take corrective action in response to inflation that surged in the spring of 2021, with Chair Jerome Powell initially describing the situation as transitory. With inflation reaching a 40-year high of 9.1% in June before decreasing slightly, the central bank has implemented several rate hikes, raising the key rate from nearly zero to a range of 2.25% to 2.5%, the highest it has been since 2018.

Powell has committed to doing whatever it takes to bring inflation under control, with more rate hikes anticipated. However, there is a prevailing concern among economists that the Federal Reserve might overshoot and trigger a recession by tightening credit excessively.

Despite worries about a recession, the strong job market has provided some reassurance. Last month saw the addition of 528,000 jobs, with the unemployment rate dropping to 3.5%, matching its pre-pandemic low. The minutes from the Federal Reserve's meeting reflect this strong job market but also point out that employment is often a delayed indicator of economic health. Officials have also observed signs of a potential cooling in the job market, including an increase in unemployment claims, a decrease in job resignations, and fewer job openings.

Reporter Alexander Lee alexanderlee_24@newsyn.co.kr