Fed ‘likely’ done with rate hikes, concerned with ‘uncertainty’: minutes

Members of the Fed's key committees predicted a rate cut in 2024, but noted “an unusually high level of uncertainty” in considering next steps. According to the new minutes Contents of the December meeting announced Thursday.

The committee voted to keep interest rates at the highest level in more than 20 years after its final meeting in 2023. But Fed officials, including Chairman Jerome Powell, signaled that a rate cut was imminent following the announcement.

“We're probably at or near the highest interest rates of this cycle,” Powell said at a press conference last month, sending the market soaring.

The new minutes added fuel to predictions that the Fed is likely to complete the rate hike.

“While discussing policy prospects, [Federal Open Market Committee (FOMC)] Participants said they believed interest rates were likely at or near the peak of this tightening cycle, but noted that the actual path of policy would depend on economic developments, according to the minutes.

“Participants pointed to the decline in inflation seen in 2023, particularly the downward shift in inflation in the last six months, and supporting that view, demand and demand in product and labor markets “There are increasing signs that the supply balance is improving.”

Inflation has fallen significantly from a peak of 9% in June 2022 to 3.1% in November 2023, according to the U.S. Bureau of Labor Statistics' latest Consumer Price Index report. The bureau's December inflation figures are scheduled to be released next Thursday.

Markets are pricing in seven quarter-point rate cuts from the Fed in 2024, far more than the Fed's own cautious expectations. But all but three of the 12 FOMC members expected at least two rate cuts in 2024, according to economic forecasts released after last month's meeting.

“Based on the projections submitted, nearly all participants agreed that the baseline forecast is appropriate to lower the target range for the federal funds rate by the end of 2024, reflecting the improved outlook for inflation,” the new meeting minutes state. He pointed out that it suggests that.”

The Fed has already been praised for pulling off a rare soft landing, but the job isn't done yet. Inflation remains above the Fed's 2% target, and the minutes point to the risks of keeping interest rates too high for an extended period of time, deteriorating household balances, and slowing the global economy.

While the unemployment rate has remained below 4% for the longest period in decades, participants also said that “a further significant decline in labor demand could cause the labor market to move from gradual easing to a more rapid decline.'' He also mentioned the risk that the situation could shift rapidly.