Federal Reserve Doesn’t Signal Rate Cuts at Policy Meeting, New Minutes Reveal

Federal Reserve Chairman Jerome Powell attends a news conference in Washington, on Nov. 1, 2023. Kevin Dietsch/Getty Images

Federal Reserve officials gave no indication at their last policy meeting that the central bank will cut interest rates, according to minutes published on Nov. 21.

Rate-setting committee members agreed at the meeting, held on Oct. 31 and Nov. 1, that monetary policy needed to stay in “restrictive” territory until the data highlighted that inflation was sustainably returning to its 2 percent target rate. Policymakers also noted that additional policy tightening might be appropriate if incoming data supported the case for more rate hikes.

“In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the committee’s 2 percent objective over time,” the Federal Open Market Committee (FOMC) minutes stated.

Meeting participants conceded that there was limited progress in lowering core services inflation (excluding housing), a key metric that the central bank monitors every month.

Staff economists’ projections were similar to previous forecasts in September. There was no recession expectation at the last FOMC meeting, the minutes showed.

According to the Federal Reserve Bank of Atlanta’s GDPNowcast model estimate, the U.S. economy is expected to grow about 2 percent in the fourth quarter.

On the subject of the volatility in the U.S. Treasury market, officials agreed that the surge in bond yields was driven by investors demanding more premiums to hold long-term securities. They asserted that the rising term premium was the result of the federal government flooding capital markets with Treasury securities to finance ballooning budget deficits.

“However, they also noted that, whatever the source of the rise in longer-term yields, persistent changes in financial conditions could have implications for the path of monetary policy and that it would therefore be important to continue to monitor market developments closely,” the minutes stated.

Market Reaction

Looking ahead to the final policy meeting of 2023, the futures market is overwhelmingly penciling in a rate pause, keeping the target federal funds rate at a range of 5.25 to 5.50 percent.

Expectations have dramatically shifted over the past year, according to a compilation of market forecasts put together by The Kobeissi Letter.

In May, investors were penciling in four rate cuts this year. In July, traders shifted their projections to three more rate hikes in 2023. After the September FOMC meeting, the futures market anticipated one more rate increase in 2024 and cuts starting in September 2024.

“Now, markets expect no more HIKE and rate CUTS beginning in May 2024,” the global capital market commentary wrote on X. “There’s a growing 30 percent chance of rate CUTS beginning in March 2024. Futures have never been more volatile.”

Stocks were little changed, with the benchmark indexes trading in the red following the publication of the minutes.

U.S. Treasurys were mixed, as the benchmark 10-year yield picked up more than 2 basis points, to above 4.44 percent. The 30-year bond added close to 3 basis points, to top 4.6 percent.

The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, held onto its gains and stayed above 103.6.

Mixed Messaging From the Fed

Federal Reserve officials have offered mixed messaging on the institution’s policy stance.

Richmond Fed Bank President Thomas Barkin, for example, told Fox Business on Nov. 20 that inflation is likely to be “stubborn,” and this would support the case for keeping interest rates higher for longer.

“I see inflation being stubborn, and that makes the case for me for being higher for longer,” Mr. Barkin said, adding that his conversations with businesses reveal that they plan to raise prices higher than where they were before the pandemic.

Richmond Federal Reserve President Thomas Barkin poses during a break at a Dallas Fed conference in Dallas on May 23, 2019. Ann Saphir/Reuters

Because of the uncertainty throughout the U.S. economy and geopolitical landscape, San Francisco Fed Bank President Mary Daly thinks waiting for future interest rate decisions makes sense.

“When we know where we’re going and it’s important to get there, moving aggressively makes sense,” Ms. Daly said in a Nov. 17 speech to a banking conference in Germany. “When uncertainty is high and the risks to our objectives more balanced, we need to practice gradualism. That means the Fed is saying, We don’t know yet.”

During an interview with CNBC last week, Boston Fed President Susan Collins wouldn’t take another rate hike off the table. However, Chicago Fed President Austan Goolsbee believes the economy is paving a “golden path” to vanquishing inflation and averting a recession, suggesting to the business news network that this could support the discussion regarding rate cuts.

That said, Fed Chair Jerome Powell repeatedly insists during post-FOMC meeting press conferences that the rate-setting committee isn’t even considering rate cuts.

“We are still very focused on the first question, which is, have we achieved a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time,” he said earlier this month. “The idea of a future interest rate cut doesn’t come up in meetings right now.”

The next two-day FOMC meeting will take place on Dec. 12–13.