Minutes from the Federal Reserve’s November meeting indicate that officials are inclined to reduce interest rates gradually, citing stronger-than-expected economic growth and a more optimistic outlook for the labor market.
Released on Tuesday, the meeting summary reveals that the Fed no longer feels an urgent need to quickly reach a “neutral” interest rate that neither stimulates nor restrains economic growth.
At the November meeting, the Federal Open Market Committee (FOMC) lowered rates by a quarter-point to a range of 4.5% to 4.75%, marking the second rate cut in consecutive meetings. This follows a more substantial half-point reduction in September. The Fed’s next meeting, scheduled for December, will be its final gathering of the year, and another quarter-point cut is anticipated by some, although the decision will depend on incoming economic data.
Federal Reserve Chair Jerome Powell has emphasized that the solid performance of the US economy means there is no need to rush rate reductions. While inflation has significantly decreased from its peak in 2022, it remains above the Fed’s 2% target. Some officials have expressed confidence that inflation will continue to decline steadily, though they also caution that underlying economic strength and potential disruptions from geopolitical risks or supply chain issues could slow the process.
The minutes also reveal that Federal Reserve officials are more optimistic about the labor market than in previous discussions. At the November meeting, policymakers indicated there was no sign of rapid deterioration, and they noted that inflation was easing, especially in the prices of goods and non-housing services. However, they highlighted the persistent challenges in housing prices, which have remained high despite recent slowdowns in rent growth.
Fed officials stressed the importance of being cautious in their approach, acknowledging that if inflation remained elevated, they might pause rate cuts or reconsider their policy stance. Conversely, if economic activity faltered or unemployment rose, officials could consider accelerating rate reductions.
The Fed is navigating a delicate balance, aiming to avoid undoing the progress made in bringing down inflation without stifling economic growth. The minutes suggest that a more gradual approach to reducing rates is appropriate, reflecting the uncertainty among officials regarding the “neutral” rate level for the current economic climate.
Looking ahead, traders have slightly tilted toward the likelihood of another quarter-point cut in December, according to futures markets. While some Federal Reserve officials, including Neel Kashkari and Austan Goolsbee, have supported further rate reductions, others remain cautious, stressing the need for careful monitoring of inflation and economic data.
With input from the Financial Times, the Wall Street Journal and the Associated Press.
