Original title: (Federal Reserve November FOMC Meeting: Rate cut pace may slow or even pause, neutral interest rate outlook)
Original author: Natalia Wu, BlockTempo
The Federal Open Market Committee (FOMC) of the Federal Reserve decided to cut rates by 25 basis points at its November meeting, lowering the benchmark rate to a range of 4.50%-4.75%. Last night (26), the Federal Reserve officially released the minutes of the November FOMC meeting. At that time, Federal Reserve officials expressed confidence that inflation is calming, and the risk of a significant slowdown in the economy and labor market has decreased, thus supporting further rate cuts.
But it also emphasizes taking a cautious approach, gradually cutting rates based on data performance. If inflation data does not meet expectations, the pace of rate cuts may slow or even pause.
When discussing the outlook for monetary policy, participants expect that if the data aligns with expectations and inflation continues to decline to 2%, with the economy still close to maximum employment levels, then a 'gradual' shift to a more neutral policy may be appropriate.
However, some analyses believe that after the profit-taking from Trump's election victory, the Federal Reserve's slowing pace of rate cuts may delay the peak of the Bitcoin bull market.
Will the Federal Reserve slow down its rate cuts?
The meeting minutes also revealed that at this month's meeting, 19 officials unanimously approved a 25 basis point rate cut. Some officials believe that the upside risk of inflation has changed little, while the downside risks to economic activity or the labor market have diminished.
Some officials also pointed out that monetary policy needs to balance the risks of easing too quickly or too slowly; too fast could hinder further efforts to combat inflation, while too slow could excessively weaken the economy and employment. Some participants indicated that if inflation remains persistently high, the FOMC could 'pause' the policy rate cuts and maintain it at a restrictive level.
In addition, many officials believe that the uncertainty regarding the so-called neutral interest rate level complicates the assessment of the degree of monetary policy restraint. The neutral interest rate refers to a policy level that neither restricts nor stimulates economic growth.
Officials' estimates of the neutral interest rate have continued to rise over the past year. Austan Goolsbee, president of the Chicago Federal Reserve Bank, stated on Tuesday that his forecast for the neutral interest rate is close to the median estimate of Federal Reserve officials in the September dot plot, which is 2.9%.
Federal Reserve officials support a rate cut in December
The Federal Reserve will hold the December FOMC meeting on December 18. Goolsbee expects that the Federal Reserve will continue to cut rates this week, adopting a stance of 'neither restricting nor stimulating economic activity.' 'Unless there is compelling evidence of economic overheating, I see no reason not to continue lowering the federal funds rate.'
Last week, he reiterated his support for further rate cuts and expressed an open attitude towards acting at a slower pace.
On the same day, Neel Kashkari, president of the Minneapolis Federal Reserve Bank, known as the 'hawk king,' explicitly supported the Federal Reserve's rate cut in December, stating that it is still reasonable for the central bank to consider another rate cut in December.
As of now, to my knowledge today, we are still considering a 25 basis point rate cut in December—this is a reasonable debate for us.
FedWatch: December rate cut probability exceeds 60%
However, given the ongoing economic resilience in the U.S. and recent strong inflation data, several Federal Reserve officials have urged caution regarding future rate cuts. Federal Reserve Chairman Powell also hinted at a hawkish stance mid-month, suggesting that officials would cut rates 'cautiously.'
The economy has not conveyed any urgent signals for rate cuts; the improved economic conditions allow us to act cautiously in decision-making.
Powell's hawkish signals have also significantly lowered market expectations for a 25 basis point rate cut in December, but after the FOMC meeting minutes were released yesterday, the market slightly increased its bets on a 25 basis point rate cut in December, rising from about 52% yesterday to the current 66.6%, with the probability of pausing rate cuts remaining at only 33.4%.
However, the market and institutions also predict that the Federal Reserve will slow down the pace of rate cuts next year. Nomura Securities recently projected that the Federal Reserve would pause rate cuts at the December meeting and would only cut rates by 25 basis points in March and June of 2025; Cathay United Bank's chief economist Lin Qichao stated last week that the Federal Reserve would still cut rates by 25 basis points in December this year and again by 25 basis points in March and June next year.
Source: FedWatch Tool
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