Fed members back gradual rate cuts should economy evolve as expected: Fed Minutes

nvesting.com – Fed members continued to support rate cuts should economic data come in as expected, but many Fed members expressed that uncertainty  over neutral rate warrants a gradual approach to monetary policy easing, according to the minutes of the Federal Reserve’s Nov. 6-7 meeting, released Tuesday.

If the data came in about as expected, with “inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes showed.

At the conclusion of its previous meeting on Nov. 7, the Federal Open Market Committee, or FOMC, reduce its benchmark rate by 25 basis points to a range of 4.5% to 4.75%.

Progress on inflation continues to hold sway. Some Fed members supported accelerated rate cuts should the labor market or economic growth deteriorate faster than expected. While other members floated the idea of a pause if inflation remains elevated.

Following the meeting, a slew of positive economic data including a hotter-than-expected September inflation report and an upbeat October retail sales report. 

The recent signs of economic strength as well as worries that a second Donald Trump administration could fuel inflation have muddied investor expectations for Fed rate cuts. Fed chairman Jerome Powell signal that economy isn’t signalling a need for speed on rate cuts as the recent strength allows the Fed to take a careful approach to monetary policy decisions. 

There remained uncertainty on where rates could ultimately end up, or the neutral rate, which neither stimulus nor drags on economic growth.

This uncertainty “complicated the assessment of the degree of restrictiveness of monetary policy” among ed members, the minutes showed, and, “in their view, made it appropriate to reduce policy restraint gradually.”