The US Federal Reserve (Fed) released the minutes of its December meeting on Wednesday (4), showing that none of 19 officials expected to cut interest rates this year. Inflation is hard to suppress.
The Fed’s decision-making group, the Federal Open Market Committee (FOMC), raised interest rates by 2 yards (50 basis points) to 4.25-4.50% last month without objection, but expected the rate final interest will rise above 5%. According to the minutes of the meeting, officials welcomed the monthly inflation moderation but are hoping for further progress to reassure them that inflation is on a sustained cooling path.
Investors had hoped that the minutes of the meeting would provide clues about the size of the next rate hike or a slowdown in the pace of rate hikes in the future, but that hasn’t been the case. Prior to the release of this record, federal funds rate futures showed that investors expected a 70% probability that the Fed would raise interest rates by 1 yard on Feb. 1.
Policy makers, however, fear that their task of restoring price stability could become more difficult if the market were to rally, largely due to a misunderstanding of the Fed’s interpretation of recent inflation data.
The federal funds futures market expects the Fed to raise interest rates to 5.25% this summer and then start cutting them, but the minutes showed that none of 19 officials expect a rate cut this year. Seven of them predicted rates would rise more than 5% this year, while seven others said they would rise even more.
For example, Minneapolis Federal Reserve Bank President Neel Kashkari said Wednesday that he expects Fed rates to hike to 5.4%.
Policy makers are trying to balance the risks of avoiding doing too little to fuel inflation while avoiding raising rates too much and triggering an unnecessary slowdown.
After the release of the minutes of the meeting, gains in US equities were reduced, the yield on monetary policy-sensitive 2-year government bonds increased and the dollar remained depreciated.
“They haven’t seen the light of the end of the inflation tunnel yet,” said Derek Tang, an economist at LH Meyer. “I’m clearly still on the alert for ‘unwarranted’ financial easing, meaning a 2-yard rate hike in February is still skewed.” .”
