Fed minutes reveal inflation risks ‘diminished’ but shed little light on when cuts may begin

Federal Reserve officials indicated that interest rates were “at or near” their peak when they voted to leave the rate unchanged last month – but offered few clues as to when they might implement cuts.

The Federal Open Market Committee signaled that it anticipated cuts of up to three quarter-percentage points in 2024 in deciding to hold the rate steady at a range between 5.25% and 5.5% — the highest since 2006, according to the minutes of their December meeting released Wednesday

“Almost all participants indicated that … a lower target range for the federal funds rate would be appropriate by the end of 2024,” said the minutes, with “a number of participants” highlighting increased uncertainty about how long strict monetary policy would need to be maintained given the progress achieved on lowering inflation.

In a firm nod to their progress in easing pricing pressures, policymakers also, for the first time since June 2022, did not use the phrase “unacceptably high” to describe inflation.

Fed officials appeared increasingly convinced that inflation was coming under control, with “upside risks” diminished and growing concern about the damage that “overly restrictive” monetary policy might do to the economy.

“Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings in particular,” the minutes said, which through November were running slightly below the Fed’s 2% target.

The Consumer Price Index for November came in at 3.1% — well off the four-decade highs hit in 2021 that prompted the Fed to go on its string of rate hikes over the past two years.

Stocks tumbled following the release of the minutes to finish down for a second straight day. Investors had sent all three indexes to near or record highs in the weeks following the Fed meetings on Dec. 12-13.

Traders of interest rate futures largely stuck to bets that FOMC would start to cut rates in March, with the policy rate seen ending the year in the 3.75%-4.00% range.

Jeffrey Roach, the head economist for Charlotte-based LPL Financial, said that the minutes of the meeting “are slightly hawkish but not enough to spook markets.”

“Markets hate uncertainty, but for now, they seem to be living with that reality,” Roach told The Post.

He predicted that the FOMC “will likely hold rates steady in March” but “start preparing markets for a cut later in the year should growth falter.”

“A few” Fed officials said they felt the central bank was approaching a point where it may face a “tradeoff” between its dual goals of controlling inflation and maintaining high rates of employment — the sort of sacrifice policymakers have hoped to avoid in their search for a “soft landing.”

The minutes shed little light on when rate cuts might commence. Indeed participants also noted “an unusually elevated degree of uncertainty” about the economic outlook, with further rate increases still possible.

But the detailed account of the session also reflected a debate underway about how to safeguard the economy while also seeing inflation continue to fall.

“Most” felt that monetary policy was having its intended impact and would continue to do so by dampening household and business spending and pulling inflation back to target.

The Fed next meets on Jan. 30-31.

With Post wires