Minutes of the January 2024 Federal Reserve meeting: | Private Equity Weekly

WASHINGTON — Federal Reserve officials said at their last meeting that they were in no rush to cut interest rates and expressed optimism but caution about inflation, according to minutes released Wednesday.

The discussion came as policymakers not only decided to keep the key overnight borrowing rate unchanged but also revised their post-meeting statement to indicate they would not cut rates until the rate-setting Federal Open Market Committee is “more confident” that inflation is receding. . .

Minutes of the meeting showed widespread optimism that the Fed’s policy initiatives had succeeded in reducing inflation, which hit its highest level in more than 40 years in mid-2022.

However, officials noted that they would like to see more before starting to ease policy, while suggesting that rate hikes may be over.

“In discussing the policy outlook, participants judged that policy rates may be at the peak of this tightening cycle,” the meeting minutes said. However, “participants generally noted that before they became more confident that inflation would continue to move towards 2%, they believed that policy rates were likely to be at the peak of this tightening cycle.” Lowering the target range for the federal funds rate is inappropriate.”

Ahead of the meeting, a series of reports showed that inflation, while still high, was returning to the Fed’s 2% target. While the minutes assessed “solid progress” being made, the committee considered some of that progress to be “exceptional” and may be due to unsustainable factors.

As a result, members said they would “carefully evaluate” the data they receive to determine the long-term direction of inflation. Officials note upside and downside risks and worry about cutting rates too quickly.

“Participants highlighted uncertainty over how long the restrictive monetary policy stance will need to be maintained,” the summary said. “Most participants noted the risks of easing the policy stance too quickly and emphasized careful assessment of incoming data to gauge whether inflation Importance continues to decline to 2%.”

Officials “remain concerned that rising inflation will continue to harm households, particularly those unable to afford higher prices,” the minutes said. “While inflation data showed a significant decline in inflation in the second half of last year, participants observed that they will carefully assess the data they receive to judge whether inflation continues to fall towards 2%.”

The minutes reflected an internal debate over how quickly the Fed wanted to move given the uncertainty about the outlook.

since The cautious approach was confirmed at the Jan. 30-31 meeting, with separate readings on consumer and producer prices showing inflation was higher than expected and still well above the Fed’s 12-month guideline of 2%. Target.

On the contrary, the U.S. labor market continued to expand rapidly, with non-agricultural employment increasing by 353,000 in January. So far, first quarter economic data shows GDP growth of 2.9% Federal Reserve Bank of Atlanta.

In addition to discussing interest rates, members also raised the issue of bond holdings on the Fed’s balance sheet. Since June 2022, the central bank has allowed more than $1.3 trillion in Treasury and mortgage-backed securities to be rolled over rather than reinvesting the proceeds as usual.

A more in-depth discussion will take place at the March meeting, minutes show. Policymakers also signaled at the January meeting that they may take a slow approach in a process known as “quantitative tightening.” A related question is how high reserves need to be held to meet banks’ needs. The Fed described current levels as “adequate.”

“Some participants expressed the view that, given the uncertainty around estimates of adequate reserve levels, slower runoff rates could help smooth the transition to that reserve level or allow the committee to continue to hold on to its balance sheet longer,” the minutes said. Runoff.” “Additionally, some participants noted that even as the Committee begins lowering the target range for the federal funds rate, the process of balance sheet erosion is likely to continue for some time.”

Fed officials view current policies as restrictive, so the big question going forward will be how much policy easing is needed to support growth and control inflation.

Some worry that growth is still too fast.

The consumer price index rose 3.1% quarter-on-quarter in January, and rose 3.9% if food and energy were excluded, with the latter falling sharply in 12 months. The so-called sticky Consumer Price Index (CPI), which weighs on less volatile home and other prices, rose 4.6%, according to the Atlanta Fed. Producer prices rose 0.3% monthly, well above Wall Street expectations.

in a In a “60 Minutes” interview that aired days after the FOMC meeting, Chairman Jerome Powell said: “With the economy as strong as it is, we think we can handle it prudently. The question is when to start cutting interest rates.” He added that he was looking for “more evidence of a sustained decline in inflation to 2%.”

where are the traders federal funds futures market The rate cut was previously priced close to locking in March, but the rate cut has been postponed to June. The number of cuts expected for the full year has been reduced from six to four. FOMC officials forecast three in December.

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