Federal Reserve maintained a restrictive stance “for some time” last month. The participants of the December 12–13 Federal Open Market Committee meeting viewed the policy rate as likely at or near its peak for this tightening cycle.
According to the minutes of the meeting, released on Wednesday, the officials “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably.”
As indicated in the minutes of the meeting, there is an increased optimism among participants about the path of inflation. The committee is willing to cut the benchmark lending rate in 2024 if that trend continues. However, the timing of such a move remains uncertain.
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A unanimous decision of the central bankers in the meeting indicated that the benchmark lending rate would remain steady in a range of 5.25 per cent to 5.5 per cent for a third consecutive time. While the statement left the option open for another hike, officials’ forecasted the end of the most aggressive tightening cycle.
The quarterly projections hinted three cuts in interest rates or cuts of some 75 basis points in 2024. After the revised outlook and Federal Reserve chair Jerome Powell’s comments, stocks and bonds witnessed a surge, fueling a wider easing in financial conditions.
The pace of rate increases last year after a series of rapid hikes in 2022 has slowed. Inflation has decreased substantially to 3.2 per cent on yearly basis, as measured by the Fed’s preferred benchmark minus food and energy.
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