A 63% chance of another 0.25 percentage point rate cut at the December 17-18 Fed meeting is
The recently released Federal Reserve (Fed) meeting minutes of November 6-7, 2024, provide a critical insight of the Fed’s cautious approach. The central bank is cutting down interest rates for inflation control.
The following insights reveal the Fed’s priorities and the challenge of balancing economic growth with inflation control.
Gradual Approach to Rate Cuts
The Federal Reserve meeting minutes underlined its cautious strategy for cutting interest rates. On November 6-7,, 2024, the benchmark interest rate was reduced by 0.25 percentage points, less than the 0.5 percentage point cut in September. This gradual move is a way of walking a tightrope between the support needed for the economy and the need to minimise inflation risks.
Policymakers stressed measured adjustments instead of drastic shifts. This approach scrutinizes the implications of each action, allowing for fine-tuning as economic conditions change.
Inflation Control
The Fed’s decisions were guided by the inflation trend. Although inflation has improved since moving closer to the target of 2%, it remains somewhat above 2.6%.
The Fed’s interest rate cuts recognized the progress made in curbing inflation. However, they also recognized that more time is needed to reach the target level. This approach ensured that rate cuts should not undermine the progress made in stabilizing prices.
Labour Market Stability: A Resilient Anchor
The labor market remains a key component of the Fed’s decision-making framework. Despite some cooling, job gains have stabilized, showing that the employment landscape is still robust. This resilience will allow the Fed to consider further rate cuts without the risk of significant unemployment increases.
However, the meeting minutes also highlighted uncertainties regarding future labor market trends. Policymakers are closely monitoring these developments to ensure that decisions on rate adjustments align with broader economic goals.
Divergent Opinions among Policymakers
The Fed meeting minutes show significant splits among the policymakers on whether and when further rate cuts are required. Most participants believe that additional rate cuts will be necessary towards the end of 2024. The other participants, however, expressed concerns about inflation risks.
These dissenting voices warn that sustained inflation above the target might necessitate stopping rate cuts or even reintroducing hikes. Fed President Tom Barkin stressed the need to preserve the Fed’s credibility, indicating that rate hikes are still on the cards if economic conditions warrant more stringent measures.
Market Reaction and Forecast
Financial markets have reacted with cautious optimism to the Fed’s cautious stance. There is a 63% chance of another 0.25 percentage point rate cut at the next meeting scheduled for December 17-18, 2024, as per the projections. Being transparent and predictable has helped the Fed to anchor market sentiment.
Growth-Inflation Balance
The Federal Reserve’s November meeting minutes underscore the fine-tuning needed to execute effective monetary policy. The learnings from this meeting underpin the Fed’s intention to:
- Gradually rate adjustment for economic resilience.
- Vigilance of inflation trends to ensure consistent movement toward the 2% target.
- Maintain policy flexibility to respond to sudden changes in the economy.
Such a careful and data-driven strategy is reflective of the Fed’s willingness to prioritise long-term stability over short-term gains.
Conclusion
The Federal Reserve’s meeting minutes of November 2024 offer valuable lessons in navigating economic complexities. As the December 17-18 meeting approaches, the Fed’s transparent and strategic decisions offer a framework for achieving economic stability in an unpredictable landscape.
