The Federal Reserve refers to data from the “coming months” to decide on rates

 

The minutes of the last meeting reinforce the idea that the central bank will act “with caution” and remove the possibility of a rate hike in December

Members of the Federal Reserve's monetary policy committee hope that "data coming in the coming months will help clarify the extent to which the disinflation process continues" and the economy and labor market are cooling, according to the minutes of the Federal Reserve. meeting on November 1, published this Wednesday. Although the central bank does not close the door to an additional rate hike, this temporary reference seems to reduce the possibility of it arriving in December. Nor can we expect a reduction soon.

“All participants agreed that the Committee was in a position to proceed with caution and that monetary policy decisions at each meeting would continue to be based on the totality of the information received and its implications for the economic outlook, as well as the balance of risks,” the minutes state.

Participants noted that further tightening of monetary policy would be appropriate if the information received indicated that progress toward the committee's inflation target was insufficient, but right after that phrase they referred to the “coming months.” Of course, the members of the committee pointed out the importance of continuing to clearly communicate that their decisions depend on the data and their firm commitment to placing inflation at 2%.

The economic forecasts prepared by the Federal Reserve services for the October-November meeting were similar to those of September. A clear slowdown in growth is expected after the spectacular data for the third quarter. The auto strike will also distort the numbers somewhat, slowing activity in the fourth quarter and boosting it in the first quarter of 2024 as lost production begins to recover. However, the magnitude and timing of these effects are highly uncertain.

“With the lagged effects of monetary policy measures expected to dampen activity, real GDP is expected to rise more slowly than the potential estimated by experts over the next two years, before rising in line with the potential in 2026. The unemployment rate was expected to remain practically stable until 2026, as the effects of lower than potential output growth would be offset by the effects of further improvements in the functioning of the labor market,” completes the analysis. the central bank.

At its meeting, the Federal Reserve's monetary policy committee decided to keep the federal funds rate in a range of 5.25% to 5.5%. He indicated that in determining the degree of additional tightening that may be appropriate to return inflation to 2% over time, he would take into account the accumulated tightening of monetary policy, the delays with which rate increases affect activity economic and inflation, and economic and financial evolution. “The committee is firmly committed to returning inflation to its 2% target,” it stated.

In his Nov. 1 press conference, Federal Reserve Chairman Jerome Powell insisted again and again that the central bank would take its next steps carefully. That message and a favorable inflation figure published days later have given rise to the idea that the recent meetings are not about a pause before getting back on track, but rather that the Federal Reserve has already finished raising rates and The next movement, well into 2024, will already be downwards.

The next meeting of the Federal Reserve will be on December 13 and 14. In addition to clearing up the mystery of where the 2023 rates close, the forecasts for interest rates, gross domestic product growth, inflation and unemployment rate of the committee members for the coming years will be known. This can give an idea of ​​whether the central bank continues to trust in a soft landing scenario for the economy, that is, control of inflation without reaching a recession.

In the statement and in the press conference on November 1, Powell left open the possibility of an additional increase and referred to the new data. “The committee will be prepared to adjust the stance of monetary policy as appropriate if risks arise that could prevent the achievement of objectives,” it said, mentioning readings on labor market conditions, inflationary pressures and inflation expectations, and financial and international developments.