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The Key Takeaways
- Minutes from the Federal Open Market Committee's latest meeting confirmed that policymakers are taking a cautious approach to cutting interest rates.
- It did not change much the perception on the financial markets, that Fed will likely cut the benchmark Fed funds rate of 0.25 percentage points at its next meeting Dec. 17-18.
- Fed cuts interest rates to stave of any economic recession, while still keeping the rate high enough to keep inflation at bay.
The minutes of the Fed’s policy committee show that the Fed’s top officials are cautious about lowering the Fed’s interest rate benchmark.
The minutes of the Federal Open Market Committee meeting held on November 6-7, released on Tuesday, showed that after announcing their first rate cut in September with great force the Fed will likely take a more gradual approach going forward. Fed officials reduced the benchmark interest rate of the central bank by 0.25 points after reducing 0.5 points at a 2-decade-high in September.
Fed officials cut the benchmark interest rates, which affect borrowing costs for all loans. They hope to increase the economy, and reduce unemployment. They held it high until this fall to discourage spending and borrowing, cool down the economy and bring down high inflation.
But now that the inflation rate has cooled back toward the Fed's goal of a 2% annual rate, they've turned their attention to preserving a labor market that's shown some cracks start to form as employers have pulled back on job listings.
"In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time," according to the minutes.
So What's Next for the Federal Reserve?
Fed officials need to weigh the benefits of low rates in boosting the economy against the dangers that they could cause inflation and overheat.
Financial markets are betting on another 25-point cut at the Fed's next meeting Dec. 17-18, a view that didn't change much after the minutes were released. According to the CME Group's FedWatch tool, which forecasts rate movements based on fed funds futures trading data, there was a 63% chance of a quarter-point cut.
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