In the most recent meeting of the Federal Open Market Committee (FOMC), Federal Reserve officials expressed growing concern about inflation and indicated that they lacked confidence to move forward with interest rate reductions. The minutes from the April 30-May 1 policy meeting, released on Wednesday, revealed apprehension among policymakers about when it would be appropriate to ease monetary policy.

According to the minutes, participants acknowledged that while inflation had eased over the past year, there had been a lack of further progress towards the Committee's 2 percent objective in recent months. The data showed significant increases in components of both goods and services price inflation. This prompted discussion among committee members, with some mentioning a willingness to tighten policy further if risks to inflation materialize.

The FOMC unanimously voted to maintain the current benchmark short-term borrowing rate in a range of 5.25%-5.5%, where it has been since July 2023. Participants assessed that this decision was supported by intermeeting data indicating continued solid economic growth.

Since the meeting, there have been some incremental signs of progress on inflation. The consumer price index for April showed inflation running at a 3.4% annual rate, slightly below the March level. However, consumer surveys have indicated increasing worries. For example, the University of Michigan consumer sentiment survey showed the one-year outlook at 3.5%, the highest since November, while overall optimism declined. A New York Fed survey yielded similar results.

During the meeting, Fed officials noted several upside risks to inflation, particularly from geopolitical events, and highlighted the pressure that inflation was placing on consumers, especially those with lower wages. Some participants suggested that the earlier increase in inflation may have been influenced by seasonal distortions, but others argued that the "broad-based" nature of the increases should not be overlooked.

The minutes also revealed concerns about the financial struggles of low- and moderate-income households, as many participants noted signs of increased credit card usage, buy-now-pay-later services, and delinquency rates for certain consumer loans. Committee members expressed worry that these pressures on consumers could pose a downside risk to consumption.

While Fed officials remained optimistic about growth prospects, they expected some moderation in the coming months. However, uncertainty lingered regarding the length of time it would take for inflation to return to the 2% objective and the extent to which high interest rates were impacting the process. Immigration was cited as a factor that was both stimulating the labor market and sustaining consumption levels.

Public remarks from central bankers since the meeting have adopted a cautious tone. Fed Governor Christopher Waller stated that he does not anticipate the need to raise rates but emphasized the importance of observing "several months" of positive data before considering rate cuts. Chair Jerome Powell maintained that the Fed will need to be patient and allow existing restrictive policies to take effect as inflation remains elevated.

Market expectations for rate cuts have adjusted accordingly. Futures pricing as of Wednesday indicated a 60% chance of the first reduction occurring in September, with the likelihood of a second cut in December declining to just over a 50% chance. Earlier in the year, the market had priced in at least six quarter-percentage point cuts.

As the Federal Reserve continues to monitor inflation and its impact on the economy, policymakers face the challenge of finding the right balance between combating inflationary pressures and sustaining economic growth.