The Fed minutes show that “substantial majority” support is slowing the pace of rate hikes

A “substantial majority” of Fed officials believe it will soon be time to slow the current pace of central bank rate hikes.

Minutes of the Federal Reserve’s policy meeting earlier this month, released on Wednesday, showed signs that the central bank is set to abandon its campaign of raising interest rates by 0.75% at next month’s policy meeting.

“A number of attendees noted that as monetary policy approaches a tight enough stance to meet the Committee’s goals, the pace of increases in the target range for the federal funds rate should be slowed,” the verbal.

“Furthermore, a substantial majority of participants believed that a slowdown in the pace of growth would soon be appropriate.”

The minutes showed that while the pace of rate hikes may be slowing, how high the Fed ultimately raises interest rates during its current cycle has likely increased in recent months.

Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a two-day closed meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S. November 2, 2022. REUTERS/Elizabeth Frantz

Officials noted that persistent inflation suggests rates are likely to stabilize at levels “slightly higher than previously expected.”

Following the release of these minutes, the shares rallied on Wednesday afternoon.

In the minutes, officials noted that with the policy rate moving closer to a “tight enough” position, the degree to which the Fed ultimately raises interest rates has become more important than the pace of rate hikes.

“Participants agreed that communicating this distinction to the public was important to reinforce the Committee’s strong commitment to bring inflation back to the 2% target,” according to the minutes.

Several participants also believed that rapid and continued policy tightening increased the risk of instability or dislocation in the financial system.

While the new target has become how high the Fed will raise rates, many participants felt there was significant uncertainty about the final level of the federal funds rate needed to bring inflation back to 2%.

Officials considered the intentional shift to a tighter policy stance to be prudent risk management given high inflation and upside risk to inflation. Members noted that recent inflation data provide very few signs of easing inflationary pressures.

The minutes echoed comments from Fed Chair Powell in the post-meeting press conference earlier this month. Fed Chair Powell laid the groundwork for starting to slow the pace of rate hikes at the central bank’s latest policy meeting, but said the question of when to moderate the size of the hikes is less important than how high the central bank will eventually raise rates to tame inflation.

Powell said interest rates will now need to rise more than expected until the Fed gets “tight enough.” Interest rate projections from the Fed’s policy meeting in September estimate rates will peak at 4.6% next year. The Fed will release new projections at its December policy meeting.

In early November, the Fed raised interest rates by 75 basis points for the fourth consecutive meeting to a range of 3.75% to 4%, which took rates to their highest level since the end of the 2007.

Markets are pricing in a 50 basis point move for the December meeting.

Fed Governor Christopher Waller said last week that recent inflation data make him more comfortable with the idea of ​​raising rates by 50 basis points at the central bank’s December meeting.

Cleveland Fed Chair Loretta Mester echoed Waller’s comments in an interview this week, saying the Fed could likely “slow down” from its current pace of rate hikes at its December meeting.

However, some Fed members are still leaving 75 basis points on the table. San Francisco Fed Chair Mary Daly said on Monday that it would be premature to push another 75 basis point rate hike off the table if the next few inflation reports come hot.

Click here for the latest economic news and economic indicators to help you with your investment decisions

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Chirping, Facebook, Instagram, flip chart, LinkedInAnd Youtube

Leave a Comment

%d bloggers like this: