Minutes from the Jan. 30-31 meeting show that most policymakers at the last Federal Reserve meeting expressed widespread uncertainty about how long borrowing costs should remain at current levels. There were concerns about the risk of cutting interest rates too soon.
“Participants highlighted uncertainty about how long a restrictive monetary policy stance would need to be maintained” to bring inflation back to the Fed’s 2% target, the minutes said. has been done.
“Most participants pointed to the risks of acting too hastily to ease the policy stance,” but also “pointed out the downside risks to the economy from maintaining an overly restrictive stance for an extended period.” Only a few people did.”
Policymakers “generally” agree they need “further confidence” in lower inflation before considering cutting rates, and the meeting minutes say market participants are currently pushing for a start in June. The wording seems to emphasize the expected cautious and perhaps gradual approach to rate cuts.
According to the minutes, “some participants” raised the risk that inflationary progress could stall completely if the economy continues to perform as strongly as it has.
At its January meeting, the Federal Reserve said it would keep the overnight interest rate stable in the range of 5.25% to 5.50% set in July, and that policymakers were aiming for “inflation” toward the central bank’s 2% target. The bank opened the door to a rate cut when it became more confident that the rate of change was sustainable. .
Fed Chairman Jerome Powell virtually ruled out the possibility of a rate cut at the March 19-20 meeting in a press conference on January 31, and minutes suggest there was no close call. are doing.
Statistics released after the last Fed meeting showed that job growth and inflation in January were stronger than expected. These reports did not change policymakers’ overall view that inflation would continue to decline this year, but they did ease the tight monetary policy used to combat the worst outbreak of inflation since the 1980s. It did little to boost the “trust” that policymakers had hoped for before the move.
Meanwhile, Fed staff cited a range of risks, from “notable” vulnerabilities in the U.S. financial system, such as falling commercial real estate prices, to the possibility that “inflation may take longer to decline than expected.” I paid attention to. As a result, the “actual pace of activity may be slower” than expected.
The minutes also mention future decisions on when and how to stop shrinking the Fed’s balance sheet, saying that “many participants” agreed to “thoroughly discuss balance sheet policy” at its next meeting in March. This suggests starting a discussion.
The rapid easing of financial conditions in the fourth quarter of 2023, after the Fed began hinting at the possibility of an end to rate hikes, had largely run its course by the time officials met in late January.
Things have been mixed since then. U.S. Treasury yields rose more than a quarter of a point, marking a temporary end to lower borrowing costs for consumers and businesses, but stocks continued to climb toward record highs.
