Jerome Powell’s Fed invites the markets not to hope too much for the arrival of imminent rate cuts: a script already seen, recited by Powell on several occasions since the beginning of the year and also followed, in the case of the euro area, by Christine Lagarde’s ECB. It is a script that emerges from the publication of minutes relating to the latest Federal Reserve meeting, or even the Fed’s first act of the year, which ended with the central bank’s decision, last January 31st, to leave the fed funds rates unchanged at the range included between 5.25% and 5.5%.
In the minutes of that meeting, published on the Fed websitewe read that “in discussing the (monetary) policy outlook, participants (of the FOMC, the monetary policy arm of the Fed), considered that rates were likely to be at the peak of this cycle of monetary tightening.”
At the same time, “participants indicated that they do not consider it appropriate to reduce the fed funds rate target, while waiting to place greater trust in the sustainable trend of inflation towards 2%”.
The Fed minutes also revealed that, at the Fed’s first meeting this year, most FOMC officials emphasized the importance of incoming data to understand whether the pace of inflation growth was heading sustainably towards 2%, underlining that, although inflation had made “solid progress” in returning to levels in line with the wishes of the US central bank, some of these advances had “an idiosyncratic nature” and were linked to factors that would not last.
However, it was also highlighted uncertainty about how necessary it was to pursue a restrictive monetary policywith some representatives referring to the presence of downside risks linked to maintaining a policy focused on very high interest rates for too long a period of time.
Several members of the FOMC have emphasized this the need to clearly communicate what the Fed means when it says it uses a data-dependent approach.
The Fed’s confidence also emerged from the minutes in the solidity of the US economy, a factor which in itself would not make it necessary for the American central bank to rush to cut rates.
Although the risks looming over the economic outlook are turned to the downside, the minutes confirmed that “the latest indicators suggest that economic activity is expanding at a solid pace”that “job growth has moderated since the beginning of last year but remains solid, and that the unemployment rate has remained low”
. This, in the face of “inflation that has subsided over the last year but which remains high.”
(currently being written)