The minutes from the December 12-13, 2023 Federal Open Market Committee (FOMC) meeting reiterated that quelling price pressures remains of paramount importance for the Fed.
On the current economic backdrop, Committee members noted that “after stronger than expected growth of real GDP in the third quarter, recent indicators suggested that growth in economic activity had slowed. While still strong, job gains had moderated since earlier this year, and the unemployment rate had remained low.”
When discussing financial conditions, participants noted that “an easing in financial conditions beyond what is appropriate could make it more difficult for the Committee to reach its inflation goal.”
On the appropriate policy actions, “all participants judged it appropriate to maintain the target range for the federal funds rate at 5¼ to 5½ percent at this meeting.” This was supported by slowing economic momentum and the labor market coming into better balance.
When discussing the future path of policy, Committee members viewed “the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves.” Committee members noted the degree of uncertainty surrounding the time that rates will need to remain restrictive.
Key Implications
Financial markets were attentively watching today’s minutes looking for any insights into the deliberations surrounding rate cuts. Following Chair Powell’s acknowledgement that policy easing had been discussed, financial markets increased their expectations for the number of rate cuts through 2024. The minutes, however, did little in the way of providing additional information on the timing or potential drivers of rate cuts and echoed the recent rhetoric of several FOMC members that have stated that while rate cuts would be appropriate in 2024, they are not imminent.
With inflation trending favorably and the labor market coming into better balance, optimism that the Fed can achieve a soft landing has been growing. Nonetheless, the Fed will proceed cautiously to balance the risks of prematurely easing against the risk of maintaining rates in a restrictive position for too long. We believe that with economic growth set to slow in 2024, the Fed will likely begin cutting its policy rate by the summer.
