FOMC Minutes: Policymakers expressed caution about cutting rates too quickly

In January 2024, the US Federal Reserve left interest rates unchanged at a 22-year high of 5.25 percent to 5.5% as inflation continues to cool, signaling an end to its rate hiking cycle and possible rate cuts next year.

The rate policy meeting summary indicated a general sense of optimism that the Fed’s policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years.

However, officials noted that they wanted to see more before starting to ease policy while saying that rate hikes are likely over.

The minutes from the January meeting indicated that the policy rate was likely at its peak for this tightening cycle, but participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.

Prior to the meeting, a string of reports showed that inflation, while still elevated, was moving back towards the Fed’s 2% target. While the minutes assessed the “solid progress” being made, the committee viewed some of that progress as “idiosyncratic” and possibly due to factors that won’t last.

Officials noted both upside and downside risks and worried about lowering rates too quickly. They were concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices. Participants observed that they would be carefully assessing incoming data in judging whether inflation was moving down sustainably toward 2 percent.

Since the January 30-31 meeting, the cautionary approach has borne out as separate readings on consumer and producer prices showed inflation running hotter than expected and still well ahead of the Fed’s 2% 12-month target.

Multiple officials in recent weeks have indicated a patient approach toward loosening monetary policy, with a stable economy and a brisk expansion of the U.S. labor market. Since June 2022, the central bank has allowed more than $1.3 trillion in Treasurys and mortgage-backed securities to roll off rather than reinvesting proceeds as usual.