Federal Reserve officials expressed confidence that inflation is easing and the labor market is strong, allowing further rate cuts, albeit at a gradual pace, according to minutes of the November meeting released Tuesday.
The summary of the meeting included several statements showing that officials are comfortable with the pace of inflation, even if it remains above the Fed’s 2% target by most measures.
With that in mind, and believing that the jobs picture is still fairly solid, members of the Federal Open Market Committee indicated that further rate cuts are likely to occur, although they did not specify when or to what extent.
‘When discussing the outlook for monetary policy, participants expected that as the data would come in
as expected, with inflation continuing to fall sustainably to 2 percent and the economy
“If we remain near maximum employment, it would likely be appropriate to gradually move toward a more neutral policy stance over time,” the minutes said.
The FOMC voted unanimously at the meeting to cut its key interest rate by a quarter of a percentage point to a target range of 4.5%-4.75%. Markets expect the Fed could cut again in December, although confidence has waned on concerns that plans for new US President Donald Trump could fuel inflation.
The meeting ended two days after the controversial presidential election campaign resulted in the Republican emerging victorious and set to begin his second term in January.
There was no mention of the election in the minutes, aside from a staff note that stock market volatility rose before the Nov. 5 results and fell afterward. There was also no discussion about the implications of fiscal policy, despite expectations that Trump’s plans, which also include lower taxes and aggressive deregulation, could have substantial economic consequences.
However, members noted a general level of uncertainty about how conditions are developing. In addition, they expressed uncertainty about where rate cuts would have to stop before the Fed reaches a “neutral” interest rate that neither stimulates nor slows growth.
“Many participants noted that uncertainties about the level of the neutral interest rate complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to gradually reduce policy restraint,” the minutes said.
Conflicting signals on inflation and uncertainty about Trump’s policies have led traders to lower their prospects for future rate cuts. The market-implied probability of a December rate cut has fallen below 60%, with only three-quarters of a percentage point expected until the end of 2025.
Committee members appeared to spend much of the meeting discussing progress on inflation and the generally stable economic outlook.
Policymakers in recent days have expressed confidence that current inflation rates are being driven by increases in shelter costs, which are expected to slow as the pace of rent increases slows and works its way through the data.
“Nearly all participants felt that while month-to-month movements would remain volatile, incoming data remained broadly consistent with a sustainable return of inflation to 2 percent,” the document said.
“Participants cited several factors that are likely to exert continued downward pressure on inflation, including declining corporate pricing power, the Committee’s still restrictive monetary policy and well-anchored longer-term inflation expectations,” it added.
Policymakers had expressed concerns about the labor market. Nonfarm payrolls rose by just 12,000 in October, although the meager gains were mainly attributed to storms in the Southeast and labor strikes.
Officials indicated that labor market conditions are generally solid.
“Participants generally noted that there was no sign of a rapid deterioration in labor market conditions, while layoffs remained low,” the minutes said.