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Fed Maintains Firm Stance Against Rate Cuts

2023.11.22

 

Key Takeaways

  • Fed officials show little interest in cutting rates soon.
  • Inflation concerns remain a priority, driving a restrictive policy stance.

Fed’s Inflation-Centric Focus

The recent meeting of the Federal Open Market Committee revealed a strong focus on combating inflation. The minutes from the meeting highlight the Fed’s commitment to maintaining a restrictive monetary policy until inflation convincingly returns to the central bank’s 2% target.

 

While Fed officials expressed the need to proceed carefully and base decisions on incoming economic data, Wall Street sentiment strongly anticipates that the Fed’s cycle of rate hikes has concluded. Market predictions even suggest potential rate cuts starting in May, expecting significant easing by the end of 2024.

No Discussion on Rate Cuts

Contrary to market expectations, the meeting minutes provided no indication of discussions around when the Fed might begin lowering rates. Fed Chairman Jerome Powell emphasized that rate cuts are not currently under consideration.

 

The Fed’s benchmark funds rate is at its highest level in 22 years, impacting short-term borrowing costs. The meeting also delved into concerns about rising Treasury yields, influenced by various factors, including government borrowing and Fed monetary policy.

Economic Projections and Risks

Fed officials anticipate a marked slowdown in economic growth for the fourth quarter, following a significant rise in Q3. They see risks to economic growth skewed downwards, while inflation risks lean upwards. Current policy is viewed as restrictive, exerting downward pressure on economic activity and inflation.

 

Fed members remain divided over the future path of monetary policy. While some favor holding the current rate to assess the economic impact of previous hikes, others advocate for further increases.

Inflation and Economic Indicators

Core inflation, as measured by the personal consumption expenditures price index, shows signs of improvement but remains above the Fed’s target. Sticky prices, including rent and medical care, continue to be elevated, posing challenges to lowering inflation.

Employment and Economic Growth Outlook

The employment sector remains strong but shows signs of moderation. The unemployment rate has increased slightly, often a precursor to recessions. Economic growth is expected to slow down considerably after a robust performance in the first three quarters of 2023.

 

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