United States Federal Reserve officials anticipate further interest rate cuts but emphasise a gradual approach, as revealed in minutes from the Federal Open Market Committee (FOMC) meeting held in November.
The committee expressed optimism about inflation easing and the labour market’s resilience while acknowledging significant economic uncertainties.
The minutes outlined officials’ confidence in inflation moving toward the 2% target, despite current levels remaining above it. “Participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2% and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes stated.
In November, the FOMC unanimously approved a quarter-point reduction in its benchmark interest rate, bringing it to a target range of 4.5%-4.75%. While markets anticipate another cut in December, concerns about potential inflationary effects from President-elect Donald Trump’s proposed tariffs have tempered expectations.
The meeting occurred shortly after Trump secured re-election, yet the minutes avoided mentioning the election explicitly, except for a note on heightened market volatility before the November 5 results. There was also no discussion of fiscal policy impacts, despite expectations that Trump’s proposed tax cuts and deregulation could significantly influence the economy.
Uncertainty about the neutral interest rate - the level that neither stimulates nor restrains growth - remains a critical concern. The minutes noted: “Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually.”
Labour market conditions, while impacted by temporary disruptions such as storms and strikes, were seen as stable overall. “Participants generally noted … that there was no sign of rapid deterioration in labour market conditions, with layoffs remaining low,” the minutes added.
On inflation, officials highlighted that rising shelter costs were a significant contributor but are expected to ease. “Almost all participants judged that, though month-to-month movements would remain volatile, incoming data generally remained consistent with inflation returning sustainably to 2%,” the document stated.
Markets have scaled back expectations for rate cuts, reflecting mixed signals on inflation and uncertainty surrounding economic policies.
Despite this cautious outlook, Federal Reserve policymakers reaffirmed their commitment to gradual adjustments in monetary policy to balance economic growth and inflation targets.