Fed offers more clues on rate hikes

New York
CNN Business

Americans are gearing up for food, family and football on Thursday, but investors were still putting off until Wednesday afternoon before starting to give thanks.

This comes as the Federal Reserve released the minutes of its last meeting at 2:00 pm ET Wednesday, which provided more information on the central bank’s views on inflation and interest rate hikes.

At the Fed meeting on November 2 raised rates by three-quarters of a percentage point This is the fourth such large-scale campaign in a row. But Fed Chairman Jerome Powell suggested at a press conference that the Fed could soon begin to slow down the rate of increase.

The minutes of that meeting showed that several other Fed policymakers agreed with Powell’s assessment.

“A number of participants noted that as monetary policy approaches sufficiently restrictive to achieve the committee’s goals, it becomes prudent to slow down the pace of increases in the target range for the federal funds rate,” the Fed said in a statement. minutes

The Fed added that “a large majority of participants felt that a slowdown in growth is likely to be appropriate soon.”

Stocks that were relatively flat and meandering prior to the release of the minutes rose sharply after they were released. The Dow ended the day up more than 95 points, or 0.3%. The S&P 500 jumped 0.6% and the Nasdaq rose 1%.

Other members of the Fed, primarily Vice Chairman Lael Brainard, has also hinted in recent speeches at the slower pace of the hikes. However, there were confusing signals from another Fed officialswho continue to stress that inflation will not go away and needs to be brought under control.

To that end, the Fed said in the minutes that inflation remains “stubbornly high” and “more resilient than expected.”

With that in mind, traders are now estimating the likelihood of the Fed raising rates by just half a point at the Dec. 14 meeting is over 75%. on futures contracts on CME. That’s more than the 52% chance of a half-point up a month ago, but below the 85% chance of a half-point up that was calculated just last week.

The recent series of inflation reports seem to suggest that the pace of runaway price increases is finally starting to slow to a more manageable level. The labor market has also remained relatively stable, although recent unemployment claims rise from a week ago.

But as long as the labor market remains strong and inflationary pressures continue to ease, the Fed is likely to scale down its rate hikes.

Some experts are increasingly concerned that if the Fed goes too far with rates, raising rates could end up slowing the economy too much and potentially lead to massive increases in unemployment, job cuts and even a recession.

The Fed’s interest rate hike had a clear impact on housing marketand rising mortgage rates help put a hole in home sales.

However, Wall Street is becoming increasingly confident that the Fed can make a so-called soft landing. Doe up 14% in October, best month since January 1976. In November, the Dow rose another 4.5%, and this year it has fallen only 6%.

S&P 500 as well as Nasdaq have also rebounded significantly since October, but both of these broader market indices continue to decline more sharply than the Dow during the year.