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 that the economy and labor market will cool, according to minutes of the meeting of the Federal Reserve dated November 1, published this Wednesday. Although the central bank is not closing the door on another rate hike, this temporary hint appears to reduce the possibility of it arriving in December. We also cannot expect a reduction any time soon.
“All participants agreed that the Committee was able 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 impact on the economic outlook as well as the balance of risks.”, it says in the minutes.
Participants noted that further tightening of monetary policy would be appropriate if the information received suggested that progress toward the Committee’s inflation target was insufficient, but immediately followed that sentence by referring to the “coming months.” Of course, committee members noted the importance of continuing to clearly communicate that their decisions depend on the data and their firm commitment to 2% inflation.
The economic forecasts prepared by the Federal Reserve departments for the October-November meeting were similar to those in September. After the spectacular figures for the third quarter, a significant slowdown in growth is expected. The auto strike will also skew the numbers somewhat, slowing activity in the fourth quarter and boosting it in the first quarter of 2024 when lost production recovers. However, the extent and timing of these impacts are highly uncertain.
“With the lagged impact of monetary policy measures expected to dampen activity, real GDP is expected to rise more slowly than experts’ estimated potential over the next two years, before rising in line with potential in 2026. The unemployment rate was expected.” “We remain practically stable until 2026, as the impact of below-potential output growth would be offset by the impact of further improvements in the functioning of the labor market,” concludes the Central Bank.
At its meeting, the Federal Reserve’s Monetary Policy Committee decided to keep the key interest rate in a range of 5.25% to 5.5%. He noted that in determining the extent of additional tightening that might be appropriate to bring inflation back to 2% over time, he should consider the cumulative tightening of monetary policy, the lags with which interest rate increases affect economic activity and impact inflation, as well as economic and financial policy would take into account financial development. “The Committee is committed to returning inflation to its 2% target,” it said.
In his press conference on November 1, Federal Reserve Chairman Jerome Powell repeatedly emphasized that the central bank would take its next steps carefully. This message and the favorable inflation data released a few days later have led to the assumption that the recent meetings are not about a pause before getting back on track, but rather that the Federal Reserve has already completed the rate hike and the the next step well into 2024 will already be downwards.
The Federal Reserve’s next meeting will take place on December 13th and 14th. In addition to clearing up the mystery of where interest rates end up in 2023, committee members’ forecasts for the coming years on interest rates, gross domestic product growth, inflation and the unemployment rate will also be known. This can indicate whether the central bank continues to rely on a soft landing scenario for the economy, that is, on controlling inflation without causing a recession.
In the statement and in the Nov. 1 press conference, Powell left open the possibility of another hike and cited the new data. “The committee will stand ready to adjust the monetary policy stance as appropriate if risks arise that could prevent the achievement of the objectives,” it said, citing readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
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