Most Fed officials are trying to slow the pace of rate hikes soon

(Bloomberg) — Federal Reserve officials concluded at their meeting earlier this month that it would soon be appropriate to slow the pace of rate hikes, indicating that the central bank was leaning toward a shift back to a 50 basis point hike in December.

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“A substantial majority of participants judged that a slowdown in growth rates would likely be appropriate soon,” said the minutes of their Nov. 1-2 meeting released Wednesday in Washington.

At the same time, “several” officials concluded that “the final level of federal funding rate that would be required to meet the commission’s goals was somewhat higher than they had previously anticipated.”

US stocks and government bonds rose, while the dollar fell after the report, as investors picked up some bland message from the minutes.

Click here for Bloomberg’s TOPLive blog on the Fed minutes

At the meeting, officials raised the benchmark rate by 75 basis points for the fourth consecutive time to 3.75% to 4%, extending the most aggressive tightening campaign since the 1980s to combat inflation at a 40-year high.

Officials discussed the effects of monetary policy slowdowns and the effects on the economy and inflation, and how soon cumulative tightening would begin to affect spending and hiring. A number of Fed officials said a slower pace of rate hikes would allow central bankers to assess the progress of their targets.

“The uncertain delays and magnitude associated with the effects of monetary policy measures on economic activity and inflation were some of the reasons cited for why such an assessment was important,” the minutes said.

The Fed said in its policy statement that rates would continue to rise to a “sufficiently restrictive” level, taking into account cumulative tightening and policy backlogs.

Read more: Key Takeaways From Minutes of Fed’s November Meeting on Rates

Chairman Jerome Powell explained in a post-meeting press conference that rates will eventually come in higher than officials expected when they submitted forecasts in September, while signaling the rate of increases would moderate going forward.

Several officials have since switched back to a 50 basis point increase when they meet next month. Investors see things the same way, betting that interest rates will peak around 5% in mid-2023, according to futures contracts.

Powell has a chance to sway those expectations in a speech in Washington scheduled for Nov. 30.

Officials in September saw rates of 4.4% by the end of this year and 4.6% in 2023. They will update those quarterly forecasts at their December 13-14 meeting.

Since the November meeting, economic data has shown subdued growth with some signs of slowing inflation, while demand for labor remains strong. Employers added 261,000 jobs last month and the unemployment rate rose slightly to 3.7%, although it remains very low on a historical basis.

Financial conditions have also eased since the interest rate hike in early November. 10-year government bond yields are down about 30 basis points, while US equity markets have moved forward.

(Adds market reaction in fourth paragraph.)

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