November 2023 Fed Minutes:

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At their last meeting, Federal Reserve officials gave little indication of cutting interest rates anytime soon, especially since inflation remains well above target, according to minutes released published on Tuesday.

Minutes of the meeting, which was held on October 31 – November. 1, it showed that members of the Federal Open Market Committee remain concerned that inflation may be stubborn or move higher, and that more may need to be done.

In any case, they said policy must remain “restricted” until data shows inflation is on a definite journey back to the central bank’s 2 percent target.

“In discussing the policy outlook, participants continued to judge that it was essential that the stance of monetary policy be kept sufficiently tight to return inflation to the Committee’s 2 percent objective over period,” the minutes said.

Along with that, however, the minutes showed that members believe they can move “on the totality of the information that comes in and its impact on the economic outlook as well as the balance of the risks.

The news comes amid overwhelming sentiment on Wall Street that the Fed is ready to walk.

Traders in the fixed income market indicate that policymakers are almost unlikely to raise rates again this cycle, and indeed prices are in for cuts starting in May. Ultimately, the market expects the Fed to implement the equivalent of four quarters of a percentage point cuts by the end of 2024.

No mention of cuts

However, the minutes gave no indication that members even considered when they might start lowering rates, something that was revealed in Chairman Jerome Powell’s press conference after the meeting.

“The truth is that the Committee is not thinking about rate cuts right now at all,” said Powell then.

The Fed’s benchmark funding rate, which sets short-term borrowing costs, is currently centered in a range of 5.25%-5.5%, the highest level in 22 years.

The meeting took place amid market concerns about an increase in Treasury yields, a topic that seemed to be the subject of much discussion at the meeting. On the same day, November 1, when the Fed released its post-meeting statement, the Treasury announced its borrowing needs over the coming months, which were actually slightly less than the markets expected.

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10-year, 3-month Treasury yield

Since the meeting, yields have fallen from 16-year highs as markets digest the impact of heavy government borrowing and comments on where the Fed is headed with rates.

Officials concluded that the rise in yields was fueled by rising “term prices,” or the extra yield investors wanted to hold long-term securities. The minutes noted that policymakers saw the price increase as a result of increased supply as the government finances its large budget deficits. Other issues included the Fed’s stance on monetary policy and views on inflation and growth.

“However, they also noted that regardless of the cause of longer-term yield increases, continued changes in financial conditions could affect the path of monetary policy and would therefore be important continue to closely monitor developments in the market,” the minutes said.

Economic growth to slow

In other business, officials said they expect economic growth in the fourth quarter to be “very slow” from the 4.9% increase in Q3 gross domestic product. They said risks to overall economic growth are likely to be on the downside, while risks to inflation are to the upside.

As for the current policy, members said it was “restrictive and putting downward pressure on economic activity and inflation,” the minutes said.

Public comments from Fed officials have been divided between those who believe the Fed can hold on as it weighs the impact of its previous 11 hikes, to a total of 5.25 percentage points, on the economy, and those who believe that more increases are needed.

Economic data is also divided, although generally favorable for inflationary trends.

The Fed’s main inflation indicator, the personal consumption expenditure price index, showed core inflation running at a 3.7% 12-month pace in September. The number has improved significantly, falling a full percentage point since May, but is still well above the Fed’s target.

Some economists believe that it could be difficult to get inflation down from here, especially with rising wages chasing stronger and more stable components such as rent and medical care increases. In fact, so-called sticky prices rose 4.9% over the past year, according to the Atlanta Fed gauge.

In terms of employment, perhaps the most critical factor in achieving lower inflation, the job market is strong although moderate. Nonfarm payrolls rose by 150,000 in October, one of the slowest months of the recovery, although the unemployment rate rose 3.9%. The half percentage point increase in the unemployment rate, if it continues, is usually associated with recession.

Economic growth, after a strong first three quarters in 2023, is expected to slow significantly. Atlanta Fed’s GDPNow tracker points to 2% growth in the fourth quarter.

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