According to minutes released on Tuesday, Federal Reserve officials at their most recent meeting showed little desire to lower interest rates anytime soon, especially given that inflation is still well above their target.
The Federal Open Market Committee members continued to express concern that more may need to be done to combat inflation, as evidenced by the summary of the meeting, which took place from October 31 to November 1.
They stated that policy must remain “restrictive” at the very least until data demonstrate that inflation is returning to the central bank’s 2% target.
The minutes stated that “during the policy outlook discussion, participants remained convinced that the monetary policy stance must be sufficiently restrictive to gradually bring inflation back to the Committee’s 2 percent objective.”
Additionally, the minutes revealed that members feel they can “proceed cautiously” and base their decisions “on the entirety of incoming information and its implications for the economic outlook as well as the balance of risks.”
The announcement coincides with Wall Street’s pervasive belief that the Fed has finished raising rates.
In fact, traders in the fed funds futures market are pricing in rate cuts beginning in May, indicating that there is almost no chance that policymakers will raise rates again this cycle. In the end, the market anticipates that before the end of 2024, the Fed will implement rate cuts equal to four quarter percentage points.
Not a word about cuts
Chairman Jerome Powell’s news conference following the meeting revealed that the minutes did not even mention when the members might begin lowering rates.
Powell stated at the time, “The Committee is actually not considering rate cuts at all.”
The benchmark funds rate set by the Federal Reserve, which determines the cost of short-term borrowing, is currently aimed at a range of 5.25 to 5.25 percent, which is the highest in 22 years.
The meeting took place in the midst of market concerns over rising Treasury yields, a subject that seemed to spark a lot of conversation. Upon the release of the Fed’s post-meeting statement on November 1, the Treasury Department also revealed its borrowing requirements for the upcoming few months, which turned out to be somewhat less than what the markets had predicted.
It may be difficult, according to some economists, to bring inflation down from here, especially with wage gains continuing apace and more obstinate costs like rent and healthcare rising. In fact, an Atlanta Fed gauge shows that so-called sticky prices increased 4.9% over the previous 12 months.
Regarding employment, which is arguably the most important factor in bringing down inflation, the labor market is robust albeit slowing down. Even though October was one of the slowest months of the recovery, nonfarm payrolls increased by 150,000, even though the unemployment rate rose to 3.9%. If the unemployment rate continues to rise by half a percentage point, it is typically linked to recessions.
Following three quarters of strong economic growth in 2023, a significant slowdown in growth is anticipated. The GDPNow tracker maintained by the Atlanta Fed indicates a 2% growth rate for the fourth quarter.
