November 2023 Fed Minutes:

At their latest meeting, Federal Reserve officials expressed little desire to cut interest rates in the near future, especially since inflation remains well above their target, according to the minutes published Tuesday.

The summary of the meeting, held from October 31 to November 31. 1, showed that members of the Federal Open Market Committee remain concerned that inflation may be persistent or rising, and that more may need to be done.

At the very least, they said, policy will need to remain “contractive” until data shows inflation is convincingly returning toward the central bank’s 2% target.

“In discussing the policy outlook, participants continued to view it as critical that the monetary policy stance remains sufficiently restrictive to bring inflation back to the Committee’s 2% target over time,” it said. the verbal procedure.

At the same time, the minutes showed that members believe they can act “cautiously” and make decisions “on all the information received and its implications for the economic outlook as well as the balance of risks.”

This publication comes against a backdrop of widespread sentiment on Wall Street that the Fed is finished raising rates.

Traders in the federal funds futures market indicate virtually no likelihood that policymakers will raise rates again this cycle and are in fact planning cuts starting in May. Ultimately, the market expects the Fed to enact cuts equivalent to four quarters of a percentage point before the end of 2024.

However, the minutes do not indicate that members even discussed when they might begin lowering rates, which was reflected in Chairman Jerome Powell’s press conference after the meeting.

“The fact is the Committee is not thinking about rate cuts at all at this time,” Powell said at the time.

The Fed’s benchmark funds rate, which sets short-term borrowing costs, is currently targeted at a range between 5.25% and 5.5%, the highest level in 22 years.

The meeting took place amid market concerns over rising Treasury yields, a topic that appeared to spark extensive discussion during the meeting. On the same day, November 1, when the Fed released its post-meeting statement, the Treasury Department announced its borrowing needs for the next few months, which were actually a bit lower than what markets had foreseen.

See the table…

Treasury yield at 10 years, 3 months

Since the meeting, yields have retreated from 16-year highs as markets digest the impact of heavy government debt-fueled borrowing and opinions about where the Fed is heading on rates.

Officials concluded that the rise in yields was fueled by rising “term premiums,” or the extra return investors demand for holding longer-term securities. The minutes note that policymakers view the rising term premium as the product of greater supply as the government funds its huge budget deficits. Other questions included the Fed’s stance on monetary policy and its views on inflation and growth.

“However, they also noted that whatever the source of the rise in long-term yields, persistent changes in financial conditions could have implications for the stance of monetary policy and it would therefore be important to continue to closely monitor market developments.” says the minutes.

In other areas, officials said they expected a “marked slowdown” in economic growth in the fourth quarter compared with the 4.9% rise in gross domestic product in the third quarter. They said risks to broader economic growth were likely tilted to the downside, while risks to inflation were tilted to the upside.

As for the current policy, members said it “is restrictive and puts downward pressure on economic activity and inflation,” according to the minutes.

Public remarks by Fed officials were split among those who believe the central bank can hold up while it assesses the impact its previous 11 hikes, totaling 5.25 percentage points, have had on the economy, and those who think further increases are justified.

Economic data was also divided, although generally supportive of inflation trends.

The Fed’s main inflation gauge, the Personal Consumption Expenditures Price Index, showed core inflation of 3.7% year-over-year in September. That number has improved significantly, losing a percentage point since May, but remains well above the Fed’s target.

Some economists think it might be difficult to bring inflation down from there, especially with strong wage increases and more stubborn items such as rent and health care. Indeed, so-called sticky prices have increased by 4.9% over the past year, according to an indicator from the Atlanta Fed.

When it comes to employment, perhaps the most influential factor in bringing down inflation, the labor market is strong, albeit subdued. Nonfarm payrolls increased by 150,000 in October, one of the slowest months of the recovery, even as the unemployment rate climbed to 3.9%. Half a percentage point increase in the unemployment rate, if it persists, is typically associated with recessions.

Economic growth, after three robust first quarters in 2023, is expected to slow considerably. The Atlanta Fed’s GDPNow tracker shows 2% growth in the fourth quarter.

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