The Fed’s meeting minutes are likely to cement the “dovish” approach to policy


Written by Howard Schneider

WASHINGTON (Reuters) – Chairman of the Federal Reserve Jerome Powell He used the word “cautious” liberally in his recent news conference when describing the US central bank’s efforts to balance the risks of still-high inflation and a surge in economic growth against tightening credit conditions and the Fed’s conviction that the economy was on the cusp of a slowdown.

Minutes October 31-November. The first meeting, which is scheduled for 2 p.m. EDT (1900 GMT) on Tuesday, is also expected to focus on a rallying cry for U.S. monetary policymakers at a time when they appear unlikely to raise their target interest rate further than That is, but I don’t want to say that while inflation remains well above the central bank’s 2% target.

“Inflation has given us some fudge,” Powell said at an IMF research conference earlier this month. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.” “However, we will continue to move cautiously, allowing us to address the risk of being misled by a good few months of data, and the risk of over-tightening.”

The minutes are likely to include “apparently hawkish rhetoric” that interest rates may continue to rise, Citi analysts wrote Sunday in a preview of the release. But “we still believe that Fed officials are probably done raising rates this cycle.”

Most investors do too, with contracts tied to the benchmark overnight federal funds rate showing a near-zero probability of the Fed moving beyond the current range of 5.25% to 5.50%. Meanwhile, CME Group’s FedWatch tool estimates the odds of an interest rate cut at around 60% at the Federal Reserve’s April 30-May 1, 2024 policy meeting.

The minutes, like the current crop of Fed policymakers, won’t relish this discussion, with officials insisting they still aren’t sure interest rates are “sufficiently restrained” to end the inflation battle — even as they talk more about how long it will take. interest rates. They may need to stay at the current level and it is not so much about how high they may need to go.

The Fed has now been on hold since July.

“Inflation appears to be stabilizing,” Thomas Barkin, president of the Federal Reserve Bank of Richmond, told Fox Business on Monday. But he also felt that he was likely to remain “stubborn, which is why I can maintain my superior status for a longer time.”

Focus on inflation

In the last two rounds of policy tightening, the Fed cut its benchmark overnight interest rate in July 2019, seven months after reaching what proved to be the peak, and in September 2007, 15 months after the top rate for that cycle.

However, the Fed was not dealing with higher inflation at those points, and policymakers said their decision on how long the current interest rate will remain in place will depend on how inflation behaves, with continued progress toward the 2% target a necessary condition for any stability. It changes.

“What I will be looking for is consistent evidence” of inflation falling steadily, Boston Fed President Susan Collins said last week. “The data is really noisy right now.”

But if the slogan of the last meeting was “caution” — Powell used a form of it eight times in his November 1 news conference — the public mood has likely intensified since then.

October data showed consumer prices were flat month over month, retail sales fell slightly, and businesses added just 150,000 jobs, a number in line with the economy’s performance before the coronavirus pandemic.

“By being very patient now… it’s the right balance,” Collins said last week.

(Reporting by Howard Schneider, Editing by Paul Simao)

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