Federal Reserve officials expressed confidence that inflation is falling and the labor market is strong, allowing for further interest rate cuts but at a gradual pace, according to minutes from the November meeting released Tuesday.
The meeting summary contained multiple statements indicating that officials are comfortable with the pace of inflation, although it remains above the Fed's 2% target by most measures.
With that in mind, and convinced that the jobs picture remains fairly strong, FOMC members signaled that further interest rate cuts are likely, although they did not specify when and to what degree.
“When discussing monetary policy expectations, participants expected that if data on this topic came in…
As expected, with inflation continuing to fall sustainably to 2 percent and the economy
“While remaining near the employment cap, it will likely be appropriate to move gradually toward a more neutral policy stance over time,” the minutes said.
The Federal Open Market Committee voted unanimously at the meeting to reduce the key borrowing rate by a quarter of a percentage point to a target range of 4.5% to 4.75%. Markets expect the Fed to cut interest rates again in December, although conviction is waning amid concerns that President-elect Donald Trump's tariff plans could lead to higher inflation.
The meeting concluded two days after the controversial presidential election campaign that resulted in the victory of the Republican, who is scheduled to begin his second term in January.
There was no mention of the election in the meeting minutes, other than a mention by staff that stock market volatility rose before the Nov. 5 results and fell afterward. There was also no discussion of the fiscal policy implications, despite expectations that Trump's plans, which also include tax cuts and tough deregulation, could have significant economic impacts.
However, members noted a general level of uncertainty about how conditions will develop. In addition, they expressed uncertainty about where interest rate cuts should stop before the Fed reaches a “neutral” interest rate that neither promotes nor constrains growth.
“Many participants noted that uncertainties regarding the level of the neutral interest rate complicated the assessment of the degree of monetary policy tightening and, in their view, made it appropriate to gradually reduce policy restrictions,” the minutes said.
Mixed signals on inflation and uncertainty about Trump's policies led traders to reduce their expectations for future interest rate cuts. The market's implied probability of a rate cut in December has fallen below 60%, with only three-quarters of a percentage point expected in cuts through the end of 2025.
Committee members appeared to spend most of the meeting talking about progress on inflation and the generally stable economic outlook.
Policymakers in recent days have expressed confidence that current inflation readings are being bolstered by increases in shelter costs that are expected to slow as the pace of rent increases eases and makes its way through the data.
“Almost all participants were of the view that although monthly movements would remain volatile, the data received generally remained consistent with inflation sustainably returning to 2 percent,” the document said.
“Participants pointed to various factors that are likely to put sustained downward pressure on inflation, including declining corporate pricing power, the Committee’s still restrained monetary policy stance, and firmer longer-term inflation expectations,” he added.
Policymakers were expressing concerns about the labor market. Nonfarm payrolls rose by just 12,000 in October, although the small gains were due primarily to storms in the Southeast and labor strikes.
Officials noted that the labor market situation is generally strong.
“Participants generally noted… that there is no sign of a rapid deterioration in labor market conditions, with layoffs remaining low,” the minutes said.
