4-1-2024 (WASHINGTON) US Federal Reserve officials have indicated that interest rates will need to remain high “for some time” in order to address persistent inflation, according to minutes from the latest rate decision released on January 3.
In December, the Fed announced its decision to maintain interest rates at a 22-year high and outlined the possibility of up to three rate cuts in 2024, causing US stock markets to surge to new record highs.
However, since then, Fed officials have sought to temper market expectations of imminent rate cuts by emphasizing that inflation remains above the central bank’s long-term target of 2%.
The minutes from the December meeting revealed that the Fed’s rate-setting committee “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably” towards the target.
The minutes did not provide further details on a discussion mentioned by Fed Chairman Jerome Powell in December’s press conference regarding the appropriate timing for rate cuts.
After reaching its peak in 2022, the Fed’s preferred inflation measure has declined significantly, registering an annual rate of 2.6% in November.
Core inflation, which excludes volatile food and energy prices, also moderated in the last month to an annual rate of 3.2%.
Meanwhile, there have been indications of a slowdown in economic growth, a softening job market, and an unemployment rate that has remained close to record lows.
These factors have raised hopes that the Fed can successfully reduce inflation without triggering a damaging recession, a scenario often referred to as a “soft landing.”
Speaking at a conference in Raleigh, North Carolina on January 3, Richmond Fed President Tom Barkin stated that a soft landing is becoming increasingly conceivable but not inevitable.
Barkin, who is a voting member of the Fed’s rate-setting committee this year, emphasized that there is no autopilot and policymakers will continue to rely on incoming data to guide their decisions.
According to data from CME Group, futures traders have assigned a probability of over 90% that policymakers will vote to keep the Fed’s key lending rate unchanged at their upcoming meeting later this month.
