Tuesday 26/November/2024 – 11:07 PM
Officials at the US Federal Reserve expressed caution at their recent meeting regarding… Reducing interest rates Very quickly, as inflation continues to rise, increasing uncertainty about their next steps.
Officials said that even if inflation continues to fall to the Fed’s 2% target, “a gradual move” on lowering interest rates “will likely be appropriate,” according to the minutes of the central bank’s Nov. 6-7 meeting.
Reducing interest rates
The minutes did not provide much guidance on what the Fed will do at its next meeting on December 17-18.
Wall Street investors see the odds of another quarter-point cut in the Fed’s key interest rate at that meeting as roughly equal, according to CME Fedwatch. Most economists believe officials may cut interest rates next month for the third time this year, but they may skip the cut at subsequent meetings.
Kathy Bostjancic, chief economist at Nationwide, said she expects the Fed to cut key interest rates by a quarter of a percentage point next month, to about 4.3%. But officials “will likely pause” early next year “to evaluate potential policy changes under a second Trump administration as well as the current landscape of economic activity and inflation,” she added in a note to clients.
In September, the Fed indicated it would cut key interest rates four times next year, but since then investors and economists have come to expect smaller cuts. The economy is growing at a strong pace, inflation is showing signs of faltering above the Fed’s target, and President-elect Donald Trump’s proposals, especially higher tariffs, may accelerate inflation.
Accelerating inflation
Inflation fell to 2.1% in September, down from a peak of 7% in mid-2022, giving Fed officials the confidence to implement a sharp half-percentage-point cut in its key interest rate that month.
But excluding the volatile food and energy categories, “core” prices are even higher, rising 2.7% from a year earlier in September. It is expected to rise again last month, when this data is announced on Wednesday, to 2.8%.
Most officials at last month’s meeting expressed confidence that inflation is steadily declining to the target level, as stated in the meeting minutes. But they also said inflation “remains fairly high,” and two officials noted “the process is likely to take longer than previously expected.” Nineteen people participate in the Fed’s interest rate discussions, although only 12 have the right to vote.
Many policymakers also noted that it is uncertain how far the Fed might have to cut interest rates. There is widespread disagreement among officials about which level of interest rates will neither inhibit nor stimulate growth. As a result, the minutes said, “This makes it appropriate to reduce (interest rates) gradually.”
