Fed Adopts Cautious Approach to Interest Rate Cuts, Meeting Minutes Reveal

Fed Adopts Cautious Approach to Interest Rate Cuts, Meeting Minutes Reveal

Key Highlights:

* The Federal Reserve is cautiously reducing its benchmark interest rate to support economic stability without reigniting inflation.

* Minutes from the November meeting suggest a likely 0.25% rate cut in December.

* Policymakers aim to balance boosting economic growth with managing inflation risks.

The Federal Reserve is treading carefully as it reduces interest rates to support the economy, according to minutes from the Federal Open Market Committee (FOMC) meeting held on November 6-7. Released Tuesday, the minutes highlight the central bank's strategy to ease monetary policy gradually, following a substantial 0.5% rate cut in September and a 0.25% reduction in November.

The Fed's benchmark interest rate influences borrowing costs across loans, from mortgages to credit cards. The recent rate cuts aim to sustain economic growth and prevent a sharp rise in unemployment, especially as inflation has moderated near the Fed's 2% target.

Inflation Eases, But Employment Concerns Emerge

Having successfully reined in inflation, which surged post-pandemic, Fed officials are now turning their attention to signs of a softening labor market. The minutes noted that job listings have declined, indicating potential vulnerabilities in employment. Policymakers emphasized the need to ensure the economy remains close to full employment while avoiding measures that could risk overheating.

"Participants anticipated that 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 stated.

Market Expectations for December Meeting

Financial markets largely anticipate another 0.25% cut in the Fed’s benchmark rate during its next meeting on December 17-18. This sentiment remained unchanged after the release of the minutes. According to the CME Group’s FedWatch tool, which uses federal funds futures trading data to gauge expectations, there is a 63% probability of a quarter-point rate cut.

Balancing Economic Growth and Inflation Risks

The Fed faces a delicate balancing act—reducing rates to stave off an economic slowdown while avoiding actions that could lead to renewed inflationary pressures. Policymakers continue to emphasize a data-driven approach, indicating they will adjust monetary policy as necessary to maintain economic stability.

By gradually lowering rates, the Federal Reserve aims to support both growth and employment while safeguarding against the risks of inflation reigniting.