Federal Reserve officials have said they will likely continue to cut interest rates for now, and investors still expect such action at the U.S. central bank’s December 17-18 meeting.
How far they will go after that remains a question, however, with minutes from the Fed meeting earlier this month expected to provide the start of a debate that will shape the financial landscape facing the newly inaugurated Trump administration.
The minutes will provide a detailed look at the November 6-7 session, where policymakers reviewed data showing stronger-than-expected economic growth and higher-than-forecast inflation. While job growth slowed in October, the general consensus among policymakers is that the U.S. economy continues to outperform expectations.
Public comments since the meeting, which often reflect positions taken during the two days of discussions, have shown wide divisions among Fed policymakers. Some feel monetary policy may be close to neutral and nearing the stopping point for rate cuts, while others anticipate a longer rate-cutting cycle.
Powell, just a week after the meeting, said the economy “is not giving us a signal that we need to rush to cut rates,” and that the central bank may decide to cut borrowing costs “cautiously.”
His remarks helped to dampen market expectations for a rate cut next month, with the odds of a quarter-point cut now at just 53%.
While policymakers like Fed Governor Lisa Cook have focused on what she sees as a gradual decline in inflation coupled with rising productivity, others still see inflation risks as a major issue.
“We’ve seen significant progress in reducing inflation since early 2023, but that progress has stalled in recent months,” Fed Governor Michelle Bowman said last week at an event in Florida. She added that the central bank “may be closer to neutral policy than we think right now.”
If true, that could lead to fewer rate cuts overall, a possibility that has become increasingly clear in the minds of many investors and economists since former Republican President Donald Trump won the presidential election on Nov. 5.
The effects of yes policies, including the possibility of rising inflation and wage pressures, could also lead to more concern about cutting rates too quickly. Investors now see the Fed's policy rate falling only to around 3.9% next year, and not much lower, stopping one percentage point higher than policymakers expected in their last set of forecasts in September.
