Fed minutes show a ‘substantial majority’ slowing the pace of rate hikes

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

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

“A number of participants noted that as monetary policy approaches a sufficiently restrictive stance to meet the committee’s objectives, it would become appropriate to slow the rate of increase in the target range for the federal funds rate,” said the minutes.

“In addition, a substantial majority of participants believed that a slowdown in the rate of growth would likely be appropriate soon.”

The minutes showed that while the pace of rate hikes may be slowing, the level of the Fed’s eventual rate hike during the current cycle has likely increased in recent months.

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

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

Officials noted that continued inflation suggests rates are likely to settle at levels “slightly higher than they had previously expected”.

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

In the minutes, officials noted that as policy rates approach a “sufficiently restrictive” stance, the level at which the Fed eventually raises 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 percent target,” the minutes said.

Several participants also believed that continued rapid policy tightening increases the risk of instability or disruption in the financial system.

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

Officials believed that deliberately moving to a more restrictive policy stance was prudent risk management given the high inflation rate and the upside risk to inflation. Members noted that recent data on inflation gave very little indication that inflationary pressures were easing.

The minutes echoed comments made by Fed Chairman Powell at the post-meeting press conference early in the month. Fed Chairman Powell laid the groundwork to begin slowing 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 interest rates to tame interest rates. inflation.

Powell said interest rates should now rise higher than predicted until the Fed reaches a level that is “sufficiently restrictive”. The rate forecasts from the Fed’s September policy meeting predicted interest rates to peak at 4.6% next year. The Fed will release new forecasts at its policy meeting in December.

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%, bringing the rate to its highest level since late 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 makes him more comfortable with the idea of ​​raising rates by 50 basis points at the central bank’s meeting in December.

Cleveland Fed president Loretta Mester echoed Waller’s comments in an interview this week, saying the Fed could likely “slow down” from the 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 President Mary Daly said Monday that it is premature to pull another 75 basis point rate hike off the table if upcoming inflation reports heat up.

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