Fed Cutting Rates Cautiously, Meeting Minutes Show

Policymakers at the Federal Reserve favor a cautious approach to cutting the central bank’s benchmark interest rate, minutes from the Fed policy committee’s most recent meeting show.

Minutes released Tuesday of the Federal Open Market Committee’s meeting on Nov. 6-7 emphasized that the Fed is likely to take a slow-and-steady approach to rate cuts from here on out after starting off their rate-cutting campaign with a bang in September. Fed officials cut the central bank’s benchmark interest rate by 0.25 percentage points in November after cutting 0.5 points from a two-decade high in September.

Fed officials are cutting the benchmark interest rate, which influences borrowing costs on all kinds of loans, hoping to boost the economy and prevent a severe increase in unemployment. Until this fall, they’d held the rate high to discourage borrowing and spending, cool the economy, and push down the high inflation that welled up after the pandemic.

But now that the inflation rate has cooled back toward the Fed’s goal of a 2% annual rate, they’ve turned their attention to preserving a labor market that’s shown some cracks start to form as employers have pulled back on job listings.

“In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” according to the minutes.

So What’s Next for the Federal Reserve?

Fed officials must balance the need to boost the economy with lower rates against the risk that lower rates could overheat the economy and make inflation flare up again.

Financial markets are betting on another 25-point cut at the Fed’s next meeting Dec. 17-18, a view that didn’t change much after the minutes were released. According to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data, there was a 63% chance of a quarter-point cut.