US Fed seeks more clarity on inflation before cutting rates

February 22, 2024 (MLN): Minutes of the US Federal Open Market Committee (FOMC) showed most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%.

Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2%.

A couple of participants, however, pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long.

According to the summary of the January 30-31 FOMC meeting released on Wednesday, Fed officials agreed interest rates were likely at their peak, but the exact timing of the first rate cut remained unclear.

They pointed to the decline in inflation seen during 2023 and to growing signs of demand and supply coming into better balance in product and labor markets as informing that view.

“That said, the minutes indicated growing support among a group of policymakers for slowing the pace at which the Fed shrinks its asset portfolio. Such a move would work with rate cuts to start easing policy,” according to the meeting minutes released Wednesday.

“The minutes confirmed the Fed is quite reluctant to start easing if it means it might have to backtrack by slowing down cuts or, worse, hiking again,” said Derek Tang, an economist with LH Meyer/Monetary Policy Analytics as reported by Bloomberg.

“They would rather start cuts later even if they have to speed cuts up to catch up,” he added.

Treasuries remained lower and the S&P 500 held losses yesterday.

Economic data has largely come in hotter than most forecasters expected since the central bank’s last gathering, disrupting the rapid slowing in inflation seen at the end of 2023 and validating the Fed’s cautious approach.

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