A ‘large majority’ of Federal Reserve officials support a slowdown in interest rate growth soon, even as some have warned that monetary policy should be tightened more than expected next year, according to a report from their latest meeting. .
The minutes of the November meeting, at which the Fed raised its base rate by 0.75 percentage points for the fourth consecutive time, would-be officials are determined to continue their campaign to root out elevated inflation.
However, the report also signaled that officials were ready to start fundraising. rates in smaller increments as they assess the economic impact of the most aggressive tightening campaign in decades.
“A slower pace in these circumstances would allow the committee to better assess progress towards its goals of maximum employment and price stability,” the minutes said.
The account posted on Wednesday showed some fed Officials believe they will have to squeeze the economy more than they initially expected because inflation has so far shown “little signs of slowing down” — even if they do so with a smaller rate hike. Some have also argued that it may be “beneficial” to wait to slow the pace of rate hikes until the policy rate is “more clearly in restrictive territory” and that there are clearer signals of a slowdown in inflation.
However, others have warned that, in a sign of division among policymakers, there is a risk that the cumulative effect of rate hikes could “exceed what is required” to bring inflation under control.
US stocks continued to rise after the publication of the minutes. The S&P 500 rose 0.5 percent midday in New York, while the Nasdaq Composite, which includes tech companies more sensitive to changes in interest rate expectations, added 1 percent.
In government bond markets, the 10-year US Treasury yield, seen as a proxy for the global cost of borrowing, fell 0.05 percentage points to 3.71%. The policy-sensitive two-year yield fell 0.04 percentage points to 4.48 percent. Both yields, which vary inversely with debt prices, were broadly flat ahead of the release of the minutes.
Following the latest rate decision, the federal funds rate is now hovering between 3.75% and 4%, a level that senior officials say will begin to curb demand more directly and lower consumer spending.
Because rate hikes take time to reflect on the economy, Fed policy proposed A half-point “cut” raises rates as soon as the next meeting in December, when their campaign to tighten monetary policy enters into new phase.
According to the minutes, officials discussed the long-term effects of monetary tightening at length. They noted that interest-rate sensitive sectors such as the housing sector adapted quickly, but “the timing of the impact on overall economic activity, the labor market and inflation was still highly uncertain.”
At a news conference earlier this month, Chairman Jay Powell said the level at which the federal funds rate would peak would exceed the 4.6 percent expected by most Fed officials just a couple of months ago.
His warning of a higher “final rate” comes amid growing evidence that price pressures are becoming more common across a wider range of goods and services, even as consumer price growth facilitates.
Since then, many politicians have said that the federal funds rate must rise above 5 percent, at least to bring inflation back to the Fed’s 2 percent target. They have also pledged to keep interest rates at what they consider “reasonably restrictive” levels for an extended period of time until they are confident that the economy is starting to cool down as expected.
According to the minutes, Fed economists concluded that the possibility of a recession next year was “almost as likely” as their baseline forecast that the world’s largest economy would narrowly escape it.
The minutes also point to heightened concerns about financial stability risks posed by the Fed’s plans to rapidly increase borrowing costs, citing the recent turmoil in the UK government bond markets that forced the Bank of England to intervene.
However, investors remain skeptical about the Fed’s intention to continue tightening monetary policy, especially as economic data is becoming increasingly mixed. Despite the protests of the Fed, market participants expect that the US economy will face a recession next year, which will force the central bank to cut interest rates.