MNI: FOMC Signals Further Gradual Rate Cuts: Minutes
Federal Reserve officials agree they have room to continue reducing interest rates but should do so gradually given uncertainty surrounding the neural rate, minutes from the central bank's November meeting showed Tuesday.
"Participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2% and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time," the minutes said.
"Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually."
The Fed said it could take a break from cutting rates if inflation stays high or accelerate them if the job market or the economy deteriorate unexpectedly.
"Some participants noted that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated, and some remarked that policy easing could be
accelerated if the labor market turned down or economic activity faltered," the minutes said.
Officials generally believe the disinflation trend is still in place despite recent bumpiness expected to be reflected in Wednesday's PCE release.
There was no mention of the U.S. election or fiscal policy in the minutes to the meeting, which took place in the two days following the vote. Since then, investors have curbed their expectations for Fed easing next year as the tariff and immigration policies of President-Elect Donald Trump are seen as potentially inflationary.
"Upside risks to the inflation outlook were seen as little changed, while downside risks to employment and growth were seen as having decreased somewhat," the minutes said.
The Fed cut rates by a quarter point to 4.5%-4.75% this month following a jumbo 50 basis point cut in September.
Some policymakers mentioned the need to discuss technical adjustments to the rate offered by its overnight reverse repo facility.
The idea would be to reduce the rate by 5 bps to set it equal to the bottom of the target range for the federal funds rate, "thereby bringing the rate back into an alignment that had existed when the facility was established as a monetary policy tool."