According to minutes from the November meeting that were made public on Tuesday, Federal Reserve officials expressed confidence that inflation is slowing and the labor market is robust, allowing for additional interest rate decreases, albeit gradually.
Several words in the meeting report suggested that policymakers are content with the rate of inflation, despite the fact that it is still higher than the Fed’s target of 2% by most metrics.
Members of the Federal Open Market Committee stated that additional rate reduction are expected to occur, but they did not say when or to what extent, in light of this and their belief that the jobs outlook is still somewhat stable.
According to the minutes, participants in the discussion of the outlook for monetary policy expected that it would be appropriate to gradually shift toward a more neutral stance of policy over time if the data came in roughly as expected, with inflation continuing to decline sustainably to 2 percent and the economy staying close to maximum employment.
In order to lower its benchmark borrowing rate by a quarter percentage point to a target range of 4.5%-4.75%, the FOMC unanimously decided to do so during the meeting. Although confidence has weakened due to worries that President-elect Donald Trump’s tariff policies will drive inflation higher, markets still anticipate the Fed may cut again in December.
Two days after the tense presidential election campaign ended with the Republican winning the election and taking office for his second term in January, the meeting came to an end.
Except for a staff note stating that stock market volatility increased prior to and decreased following the Nov. 5 outcomes, the minutes contained no reference to the election. Despite expectations that Trump’s policies, which also include aggressive deregulation and lower taxes, might have significant economic effects, there was little discussion of the fiscal policy ramifications.
Members did observe an overall lack of clarity regarding the state of affairs, though. Furthermore, they were unsure of the point at which rate reduction would have to end before the Fed reached a neutral interest rate that neither stimulates nor inhibits growth.
According to the minutes, several participants felt that it was reasonable to progressively lessen policy restriction because it was difficult to determine how restrictive monetary policy was due to uncertainty surrounding the level of the neutral rate of interest.
Traders have lowered their expectations for further interest rate decreases due to conflicting inflation signals and the uncertainty surrounding Trump’s objectives. With a three-quarters of a percentage point reduction expected through the end of 2025, the market-implied chance of a rate cut in December has fallen below 60%.
The majority of the conference seems to be devoted to discussing inflation progress and the overall stability of the economy.
In recent days, policymakers have voiced confidence that the rise in shelter costs, which is anticipated to decline as the pace of rent hikes slows and becomes reflected in the data, is driving up current inflation estimates.
According to the document, nearly all participants believed that incoming data generally remained consistent with inflation returning sustainably to 2 percent, even though month-to-month changes would continue to be erratic.
The Committee’s still-restrictive monetary policy stance, declining corporate pricing power, and well-anchored longer-term inflation expectations were among the factors mentioned by participants as expected to continue to push inflation lower, it added.
Concerns over the labor market had been voiced by policymakers. In October, nonfarm payrolls increased by just 12,000, although labor strikes and hurricanes in the Southeast have been mostly blamed for the little increase.
According to officials, the labor economy is doing well overall.
According to the minutes, participants largely agreed that there was no indication of a sharp decline in labor market conditions, and layoffs were still few.
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