Fed To Take Cautious Approach to Interest Rates

Federal Reserve Seal on Money
Federal Reserve Seal on Money | Image by alexgo.photography/Shutterstock

The Federal Reserve will likely hold interest rates steady pending a sudden rebound in inflation, according to minutes released Tuesday from a Federal Open Market Committee meeting.

Published on November 21, the minutes show Federal Reserve officials unanimously agreed at their last policy-setting meeting from October 31-November 1 that a more cautious approach to interest rates is necessary following recent inflation data.

“All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks,” the minutes read.

The reason the FOMC gave for why members might approve additional rate hikes would be “if incoming information indicated that progress toward the Committee’s inflation objective was insufficient.”

This suggests that the Fed will hold its benchmark interest rate steady at 5.25%-5.50% until economic data clearly points to inflation retreating reliably to the U.S. Central Bank’s 2% objective.

While participants noted that inflation has moderated over the past year, the committee underscored that current inflation remains “unacceptably high.”

“The overall tone of the FOMC minutes was cautiously hawkish – the commitment to remaining in restrictive territory for ‘some time’ was the clearest takeaway,” said Ian Lyngen, strategist with BMO Capital Markets, per Reuters.

Federal Reserve participants generally noted high uncertainty surrounding the nation’s future economic outlook.

Regarding the upside risks to inflation, the FOMC points toward the possibility that progress on disinflation stalls or inflation reaccelerates because of continued momentum in economic activity.

“Inflation has given us a few head fakes,” said Federal Reserve chair Jerome Powell at an International Monetary Fund research conference earlier this month, as reported by The Dallas Express. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”

As of market close on November 21, there was a 95% probability that the Federal Reserve would opt to hold rates steady in December, according to the CME FedWatch Tool.

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