The Federal Open Market Committee (FOMC) meeting took place on January 30-31 and the minutes of the meeting were released. Policymakers have expressed their concern that the progress towards a 2% inflation target may stall. According to the minutes released this week, the Fed rate cuts will not be happening soon, as the officials consider the current uncertain economy.
During the meeting, they decided to keep the main borrowing rate unchanged and also changed their statement after the meeting to show that they wouldn’t cut rates until they were more confident that inflation was going down to their target of 2%.
Fed Rate Cuts Decision
The meeting minutes showed that there was a feeling of hope that the Fed’s policy had brought down the inflation rate, which had reached its highest level in over 40 years in mid-2022.
However, officials mentioned that they needed to see more progress before they could implement the Fed rate cuts while also hinting at the possibility of interest rates going up in the future.
Before the meeting, reports had suggested that inflation, though still high, was getting closer to the Fed’s target of 2%. The meeting minutes discussed the “solid progress” made, but the committee thought that some might be due to temporary factors. As a result, they said they would “carefully look at” new data to see where inflation is going in the long run.
Since the meeting at the end of January, the cautious approach has been proven right as recent reports on consumer and producer prices have shown that the inflation is higher than expected and still above the Fed’s 2% target. Many officials have mentioned a patient approach to changing monetary policy in the last few weeks.
The economy, which grew by 2.5% last year, has reassured the Federal Open Market Committee (FOMC) members that the 11 interest rate hikes in 2022 and 2023 did not slow down growth.
On the flip side, the US job market has been growing quickly, with 353000 new jobs added in January. According to the Atlanta Fed, early data for the first quarter suggests that the economy is growing at a rate of 2.9%. Along with the interest rate talks, the members also discussed the bonds that the Fed currently holds. Since June 2022, the Fed has met more than $1.3 trillion in Treasury bonds and mortgage-backed securities mature without reinvesting the money, which is a change from what it usually does.
When Will the Next Fed Rate Cuts Be?
The next Fed rate cuts have been on everyone’s minds, and the last meeting has revealed that the Federal Reserve officials’ cautious approach towards lowering interest rates is too fast. The meeting minutes said they talked about how long they will need to keep a tight grip on monetary policy.
Most officials mentioned the risks of moving too quickly to make policy easier and stressed the importance of watching new data to see if inflation is going down to 2%.
The meeting minutes also revealed that the central bank officials thought there was good progress on lowering inflation, and they also expected that the cost of services, except those related to housing, would slowly go down as the job market improved and wage increases were moderated.
Fed Chair Jerome Powell and other Fed officials have expressed caution against lowering rates too quickly after the last meeting on 31 January, which has dashed the investors’ hopes of possible Fed rate cuts in March.
Presidents of the Boston and Cleveland Fed have predicted that the rate cuts might happen later this year. Additionally, the Atlanta Fed President has said there could be a possible rate cut in the summertime. Now, people are expecting the first rate cut to happen in June.
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