By Howard Schneider
WASHINGTON (Reuters) – Federal Reserve officials say they are likely to keep cutting interest rates for now, and investors still expect they will do so at the U.S. central bank’s Dec. 17-18 meeting.
But how far they will go remains a wide open question, as the minutes of the Fed meeting earlier this month are expected to show the beginning of a debate that will shape the financial landscape facing the new Trump administration you have to deal with.
The minutes of that session will be released Tuesday at 2 p.m. EST (7 p.m. GMT) and will provide a detailed account of the Nov. 6-7 session, which saw officials grapple with data showing stronger-than-expected economic growth and higher economic growth . than expected inflation. While job growth slowed in October, the feeling among policymakers was that the U.S. economy continued to exceed expectations.
“It’s actually remarkable how well the U.S. economy has performed, with strong growth, a strong labor market and falling inflation,” Fed Chairman Jerome Powell said at a Nov. 7 news conference after the central bank announced it would scale back its benchmark policy. . interest rate by a quarter of a percentage point to the range of 4.50%-4.75%.
“We’re moving toward a more neutral stance… We’ll just have to see where the data takes us… I’m not judging (December) out or in,” Powell said of the Fed’s rate. plans to make monetary policy less restrictive and ultimately neither stimulate nor restrict economic activity.
Public commentary since the meeting, which often reflects positions taken during the two days of deliberation, has revealed broad division among Fed officials who believe that monetary policy could already be close to the neutral level and, if as a result, close to a possible freeze in interest rates. point for rate cuts, and for those who expect a likely longer rate cut cycle.
Powell said just a week after the meeting that the economy is “not giving any signal that we need to rush to cut rates,” and that the central bank can decide “cautiously” on further cuts in borrowing costs.
His comments contributed to a steady decline in market expectations for a rate cut next month, with a quarter of a percentage point cut only 53% likely as of Monday afternoon.
TRUMP EFFECT
While officials like Fed Governor Lisa Cook have focused on what she sees as a steady easing of inflation that has yet to be accompanied by possible productivity improvements, others say they still view inflation risk as paramount.
“We have made significant progress in reducing inflation since early 2023, but progress appears to have stalled in recent months,” Fed Governor Michelle Bowman said at an event in Florida last week, adding that the central bank ‘may be closer to a neutral policy. attitude than we now think.”
If so, it could mean fewer Fed rate cuts overall, a possibility that has become clearer in the minds of many investors and economists since Republican former President Donald Trump won the Nov. 5 presidential election on a platform of lower taxes, limit immigration, and raise import tariffs.
The consequences of that policy, including potentially increased inflation and wage pressures, could also lead to more caution about cutting rates too far and too quickly. Investors only see the Fed’s policy rate falling to about 3.9% next year, and no further. This means they are a full percentage point higher than policymakers had anticipated in their last series of projections from September.
(Reporting by Howard Schneider; Editing by Paul Simao)
