The meeting minutes released on Tuesday showed that Federal Reserve officials expressed confidence that inflation is easing and the labor market is strong, allowing for further rate cuts, albeit in a gradual manner.
The meeting minutes included several statements indicating that officials were satisfied with the pace of inflation, even though inflation remained above the Federal Reserve's 2% target by most measures.
Taking this into account, and confident that the labor market remains quite stable, members of the Federal Open Market Committee (FOMC) indicated that further interest rate cuts could be possible, although they did not specify when or by how much.
"When discussing the outlook for monetary policy, participants anticipated that if the data aligned with expectations, inflation continued to decline to 2%, and the economy remained close to maximum employment levels, then over time it might be appropriate to gradually shift to a more neutral policy stance," the meeting minutes stated.
The FOMC unanimously voted at the meeting to lower the benchmark borrowing rate by 0.25 percentage points, to a target range of 4.5%-4.75%. The market expects the Federal Reserve may cut rates again in December, but confidence has waned due to concerns that President-elect Trump's tariff plans could drive up inflation.
Two days before this meeting, the U.S. presidential election sparked controversy, with Republicans ultimately winning and beginning their second term in January next year.
The meeting minutes did not mention the election, although staff pointed out that stock market volatility rose before the election results on November 5 and then fell afterwards. The meeting also did not discuss the impact of fiscal policy, although Trump's plans (which also include tax cuts and aggressive deregulation) are expected to have a significant impact on the economy.
However, members did note that there was overall uncertainty regarding the developments. Additionally, they indicated uncertainty about where interest rate cuts would need to stop before the Federal Reserve reaches a 'neutral' interest rate that neither promotes nor suppresses economic growth.
The meeting minutes stated: "Many participants believed that the uncertainty of the neutral interest rate level complicated the assessment of the degree of monetary policy restrictions; in their view, it would be appropriate to gradually reduce policy restrictions."
Conflicting signals on inflation and the uncertainty of Trump's policies led traders to lower their expectations for future rate cuts. The implied probability of a rate cut in December has fallen below 60%, with only a 0.75 percentage point cut expected by the end of 2025.
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