Just-In: Fed Takes Cautious Approach to Future Rate Cuts, Lowering the Market Expectation

The Federal Reserve (Fed) on Tuesday, November 26, released the minutes of the Federal Open Market Committee (FOMO) meeting on November 6–7, 2024. The minutes showed that Fed officials were satisfied with the pace of inflation and expressed confidence in the strong labor market. As a result, they considered cutting the federal funds rate gradually without informing the timing or the figure of the cuts.

 

The minutes emphasized that monetary policy depends on whether the data meets the Fed's expected value. If inflation continues to fall to the 2% target and employment reaches its maximum, the rate adjustments will become neutral.

 

However, Fed officials are ambivalent about their stance on rate adjustments. The minutes of the meeting reflect that many officials believe that the political uncertainty complicates the assessment of the monetary policy, so the Fed had better reduce the rate. Yet, other officials note that if inflation increases, the Fed should pause to bolster the rate to tame inflation.

 

Based on the minutes, the journalist Nick Timiraos summarized that the Fed would be more cautious about cutting interest rates.

 

In addition, the latest minutes showed that some Fed policymakers considered cutting the overnight reverse repurchase agreement (RRP) rate by 5 basis points to equal the bottom of the target range for the federal funds rate. However, this could increase downward pressure on rates of other currency markets.

 

Given that the Fed officials remain divided on whether to raise or lower the rates, traders have lowered their expectations for future rate cuts. Markets have hinted that the likelihood of a December rate cut has fallen below 60%. The Fed is expected to have a 0.75% rate cut by the end of 2025.

 

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