US Federal Reserve officials have indicated an intention to lower interest rates gradually, subject to the economy remaining strong and inflation continuing on its path towards the Fed’s target, minutes from the November policy meeting showed.
“In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent 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 read.
However, the meeting participants noted that monetary policy decisions were “not on a
preset course”. In particular, several officials were said to have noted “the volatility of recent economic data”, highlighting the need to focus on underlying economic trends and the evolution of the outlook.
Fed officials also noted the uncertainties around the level of the neutral rate, the point at which interest rates neither expand nor contract economic growth. This uncertainty “complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually,” officials said.
The minutes showed some officials said the Fed could pause rate cuts and hold borrowing costs at a restrictive level if inflation remains elevated. Earlier this month, Fed Chair Jerome Powell pointed out that the latest economic data could allow the Fed to take its time in deciding how far and how fast to lower interest rates.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said at the time. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
The US reduced interest rates by 25 basis points (bsp) at the start of November, lowering the central bank’s key lending rate to a range of 4.5% to 4.75%. The rate cut was the second to take place in four years.
The agency had previously raised the rates 11 consecutive times, the last of which was in July 2023, setting the range between 5.25% and 5.50%. This rate was held constant for eight consecutive meetings until it was reduced by 50 bps in September 2024 to a range of 4.75% to 5%.
Most investors still anticipate the Fed to cut interest rates again by 25 basis points in December, although now at a smaller margin than one month ago, according to CME Group data.
