FOMC Minutes: Policymakers saw rate cuts likely, path highly uncertain

According to meeting minutes made public on Wednesday, Federal Reserve policymakers agreed in December that interest rate reductions are probably going to happen in 2024, although they didn’t seem to specify when.

A number of FOMC members stated that when bank reserves “are somewhat above the level judged consistent with ample,” it would probably be appropriate to conclude the process. According to those authorities, talks would start well in advance of the process being stopped, giving the public enough warning.

The Federal Open Market Committee, which sets interest rates, decided to keep its benchmark rate constant at the meeting, with a range of 5.25% to 5.5%. By the end of 2024, three quarter-percentage point cutbacks are anticipated, according to the members.

There is, however, a great deal of uncertainty about when or how that will occur, according to the meeting report. The minutes said, “During the policy outlook discussion, participants believed that the policy rate would be at or close to its peak for this tightening cycle, but they also acknowledged that the actual policy path would depend on how the economy evolves.”

The officials took notice of the advancements achieved in the fight against inflation. According to them, supply chain issues that significantly fueled an increase that peaked in the middle of 2022 have subsided. They also mentioned improvements in better balancing the labour market, but that is still a work in progress.

The “dot plot” of individual members’ expectations released following the meeting showed that members expect cuts over the coming three years to bring the overnight borrowing rate back down near the long-run range of 2%.

“Almost all participants indicated in their submitted predictions that a lower target range for the federal funds rate would be appropriate by the end of 2024, reflecting the improvements in their inflation outlooks,” the paper said.


On the other hand, a “unusually elevated degree of uncertainty” over the policy course was observed in the minutes. If inflation doesn’t cooperate, some members suggested it could be necessary to maintain the funds rate at a high level. Others mentioned the possibility of more hikes depending on how things develop.

“Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective,” the minutes stated.

Despite the cautionary tone from Fed officials, markets expect the central bank to cut aggressively in 2024. Fed funds futures trading points to six quarter-point cuts this year, which would take the fed funds rate, which primarily sets what banks charge each other for overnight loans but also influences multiple consumer debt products, down to a range between 3.75-4%.

Earlier Wednesday, Richmond Fed President Thomas Barkin on Wednesday also expressed caution about policy, noting the number of risks inherent in trying to guide the economy to a soft landing.

According to the minutes, there has been “clear progress” in containing inflation; in fact, a six-month measure of personal consumption expenditures shows that the rate of inflation has slightly fallen below the Federal Reserve’s target of 2%.

The report did, however, also point out that development has been “uneven” across industries, with core services continuing to rise while energy and core products have decreased. The Fed’s initiative to lower the amount of bonds it has on its balance sheet was also discussed by officials. Due to the central bank’s decision to not reinvest maturing funds as usual, around $1.2 trillion has been saved.