Will FOMC minutes support careful monetary policy stance?

During his most recent press statements and remarks, Federal Reserve Chair Jerome Powell used the word “careful” to characterise the U.S. central bank’s attempt to strike a balance between tightening credit conditions and the Fed’s belief that the economy was about to slow down, and the risks of still-high inflation and an unexpected spike in economic growth.

The word that US monetary policymakers have come to embrace at a time when they seem unlikely to raise the target interest rate any further but are reluctant to say so as long as inflation is still significantly above the central bank’s 2% target is expected to be highlighted in the minutes of the meeting held on October 31–November 1.

A growing number of people believe the Fed could pull off the surprise of steering out of the worst inflationary surge in forty years without causing significant harm to the economy.

According to a staff study by the New York Fed published on Tuesday, the US central bank’s tardiness in hiking interest rates has helped the economy achieve greater growth while making the same progress towards reducing inflation as it would have if rate increases had begun earlier.

The initial boost from maintaining the fed funds rate close to zero in 2021 has had a positive net impact. The rates of inflation and what would have been accomplished by starting hikes earlier are not very different.

There is little appetite among policymakers to declare victory at this point, or to give investors much direct guidance about what will happen next. The minutes, as a result, will likely include the “superficially hawkish rhetoric” that rates might still move higher, according to Citi Group analysts. Most observers continue to think that Fed officials are most likely done raising rates this cycle.

The minutes, like the Fed’s current policymaking team, will likely refuse to consider that conversation, with officials maintaining that they are still unsure whether the policy rate is “sufficiently restrictive” to bring the fight against inflation to a close. In their public statements, they have started to talk less about the potential increase in rates and more about how long they might need to stay at the current level.