“All members of the Federal Open Market Committee (FOMC) believed that it was possible to proceed cautiously,” the minutes of the Fed's most recent meeting said.
Inflation in the US has slowed as October consumer price data showed positive signs. While the Fed has not declared victory, the market has begun to discuss how long to hold the 5.25%-5.50% level.
The minutes also said: “Note that further tightening of policy would be appropriate if progress towards the target is not met.” This statement suggests that there will be some degree of surprise shock to prompt further rate hikes.
This signal was absent in the September minutes, when most Fed officials still judged that another rate hike would be needed.
In contrast, the latest policy meeting minutes said that “all participants judged that maintaining” current interest rates was appropriate – a stance that will be clarified at the December 12-13 meeting.
The document drew little reaction from financial markets, with most confirming that the Fed was done raising interest rates.
The minutes showed Fed policymakers are grappling with conflicting economic signals that have compounded the risks to the economy. Breezy inflation remains a concern, along with overly tight credit controls that are hurting the outlook for the U.S. economy.
The U.S. economy just grew at a blistering 4.9% annual rate in the third quarter. That’s good for the U.S. government, but not so good for the Fed. But financial markets have pushed interest rates higher for U.S. households, businesses, and the government, threatening to stifle economic growth and employment more than is needed to get inflation back to its 2% target.
Inflation “remains well above” target, likely requiring Fed policy to “remain restrictive for some time until there is a clear, sustained decline in inflation,” according to the minutes.
“The overall tone of the FOMC minutes was cautiously hawkish,” said Ian Lyngen, an analyst at BMO Capital Markets.
Fed Chairman Jerome Powell used the term "prudent" in a recent press conference to describe the Federal Reserve's efforts to balance rising inflation with signs of a slowing US economy. The leader's view is valid. The Fed still has the ability to "soft land."
In fact, the US Federal Reserve's late start to raising interest rates (about a year after prices started rising) allowed the US economy to grow more, a study by the New York Fed released on Tuesday found.
Policymakers, however, appear reluctant to hint at the way forward.
“Inflation has given us some false alarms,” Mr. Powell said at an International Monetary Fund research conference earlier this month. “If further tightening of policy becomes appropriate, we will not hesitate to maintain it. However, we will continue to proceed carefully to address both the risk of being misled by a few months of good data and the risk of over-tightening.”
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