Original title: (Federal Reserve's November FOMC Meeting: The pace of rate cuts may slow down or even pause, outlook on neutral interest rate)
Original author: Natalia Wu, BlockTempo
The Federal Open Market Committee (FOMC) of the Federal Reserve decided in the November meeting to cut the interest rate by 25 basis points, lowering the benchmark rate to a range of 4.50%-4.75%. And last night (26th), the Federal Reserve officially released the minutes of the November FOMC meeting. At that time, Federal Reserve officials expressed confidence that inflation is easing, and the risks of significant slowdown in the economy and job market have diminished, thus supporting further rate cuts in the future.
But it also emphasizes that a cautious attitude will be adopted, and that rate cuts will be made "gradually" based on data performance. If inflation data does not meet expectations, the pace of rate cuts may slow down or even pause.
"When discussing the outlook for monetary policy, participants expect that if the data aligns with expectations, inflation continues to decline to 2%, and the economy remains close to maximum employment levels, then a "gradual" shift towards a more neutral policy may be appropriate."
However, some analysts believe that after taking profits from the Trump victory rally, the Federal Reserve's slowing pace of rate cuts may delay the peak of the Bitcoin bull market.
Will the pace of rate cuts by the Federal Reserve slow down?
The meeting minutes also revealed that at this month's meeting, 19 officials unanimously agreed to lower the interest rate by 25 basis points. Some officials believe that the upside risk of inflation has hardly changed, 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 being too quick or too slow in loosening, as being too quick may hinder further efforts to combat inflation, while being too slow might excessively weaken the economy and employment. Some participants indicated that if inflation remains high, the FOMC might "pause" the easing of policy rates and maintain them at restrictive levels.
In addition, many officials also believe that the uncertainty regarding the so-called neutral interest rate level complicates the assessment of the degree of monetary policy restriction. 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. Chicago Federal Reserve Bank President Austan Goolsbee 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 its December FOMC meeting on December 18. Goolsbee expects the Federal Reserve to continue to cut rates this week, taking a stance of "neither restricting nor promoting economic activity" and stating, "Unless some compelling evidence of economic overheating emerges, 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, the so-called 'hawkish king', Minneapolis Federal Reserve Bank President Neel Kashkari, clearly 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 today, I know that there is still consideration for a 25 basis point rate cut in December—this is a reasonable debate for us."
FedWatch: The probability of a rate cut in December exceeds 60%
However, given the ongoing economic resilience in the U.S. and recent strong inflation data, several Federal Reserve officials have urged a cautious approach to future rate cuts. Federal Reserve Chairman Powell also hinted at a hawkish stance in mid-month, indicating that officials will "act cautiously" in terms of rate cuts.
"The economy has not signaled any urgent need for a rate cut, and better economic conditions allow us to act cautiously in decision-making."
Powell's hawkish signals have also caused market expectations for another 25 basis point rate cut in December to plummet, 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, both the market and institutions predict that the Federal Reserve will slow down the pace of rate cuts next year. Nomura Securities recently projected that the Federal Reserve will pause rate cuts in the December interest rate meeting and will only cut rates by 25 basis points in March and June 2025; Cathay Bank's chief economist Lin Qichao stated last week that the Federal Reserve will still cut rates by 25 basis points in December this year, and then another 25 basis points in March and June next year.
Source: FedWatch tool
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