Federal Reserve officials appeared increasingly convinced at their meeting last month that inflation was coming under control, with “upside risks” diminished and growing concern concerning the damage that “overly restrictive” monetary policy might do to the economy, in line with minutes of the central bank’s Dec. 12-13 policy meeting.
Because of this “just about all participants indicated that…a lower goal range for the federal funds rate can be appropriate by the top of 2024,” the minutes said, with “a lot of participants” highlighting increased uncertainty about how long strict monetary policy would should be maintained given the progress achieved on lowering inflation.
“Just a few” Fed officials said they felt the Fed was approaching some extent where the central bank may face a “tradeoff” between its dual goals of controlling inflation and maintaining high rates of employment – the kind of sacrifice policymakers have hoped to avoid of their seek for a “soft landing” from the worst breakout of inflation in 40 years.
“Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings specifically,” the minutes said, which through November were running just under the Fed’s 2% goal.
“Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings specifically,” the minutes said. Fed Chair Jerome Powell, above. REUTERS
The minutes shed little light on when rate cuts might start.
Indeed participants also noted “an unusually elevated degree of uncertainty” concerning the outlook, with further rate of interest increases still possible.
However the detailed account of the session also reflected a debate underway about find out how to safeguard the economy while also seeing inflation proceed to fall.
“Most” felt that monetary policy was having its intended impact and would proceed to achieve this by dampening household and business spending and pulling inflation back to focus on.
A debate is underway about find out how to safeguard the economy while also seeing inflation proceed to fall. AFP via Getty Images
Participants “stressed…that it could be appropriate for policy to stay at a restrictive stance for a while until inflation was clearly moving down sustainably toward the Committee’s objective.”
But in addition they said coming decisions can be “careful and data-dependent,” cognizant of developing risks to the economy and faster-than-anticipated gains on inflation.
The Fed held its benchmark overnight rate of interest regular in the present 5.25%-5.50% range finally month’s policy meeting, with recent economic projections showing most officials expect that the policy rate will should be lowered by three-quarters of a percentage point over the course of 2024.
Precisely when the Federal Reserve will start cutting rates of interest stands as the large unknown for markets and economists in the beginning of 2024. Market pricing shows investors currently betting the Fed will cut rates starting at its meeting in March while economists on balance see the Fed holding off until closer to mid-year.
The Fed next meets on Jan. 30-31.
