Fed officials divided on rate cut scenario

Fed officials are divided on when to start cutting rates, with most favoring a cautious approach, while some consider it risky to start late, according to the minutes of the latest meeting, published Wednesday.

“Participants highlighted the uncertainty associated with the length of time a restrictive monetary policy will have to be maintained,” it is written in the minutes of the last meeting of the American central bank, which was held on January 30 and 31 .

Thus, “most participants highlighted the risks of acting too quickly to relax the policy,” this document details.

These “underlined the importance of carefully evaluating the available data to determine whether inflation falls sustainably to 2%”, it is specified.

Starting to cut prematurely could indeed lead to a rebound in inflation.

But “some participants nevertheless highlighted the risks for the economy associated with maintaining a position that is too restrictive for too long,” the minutes further detail.

In this scenario, the American economy would slow down too much, which could lead to a sharp increase in unemployment, or even a recession.

A Fed governor, Michelle Bowman, once again emphasized on Wednesday, during an event in Washington, that she does not anticipate an imminent rate cut.

“It’s definitely not now,” she said. “There will be time, at some point, to begin the process of lowering rates, but given the uncertainty of the data, I’m just not confident.”

“We have ample time, I think, to (…) have more confidence in the direction that the economy is taking,” underlined this official, judging it “very difficult to have a real idea of ​​the performance of the economy, with a solid GDP, a very tight labor market and inflation which is falling (…) as quickly as we would like.

The Fed’s monetary policy committee (FOMC), during this meeting, maintained its main key rate in the range of 5.25 to 5.50% in which it has been since July.

But the FOMC had warned that before it begins cutting rates, it wants to be sure it doesn’t start too early.

The committee, therefore, “does not anticipate that it is appropriate to reduce rates, until it is more confident that inflation is falling sustainably towards 2%”, target level, according to the press release published at the end of the meeting.

Fed Chairman Jerome Powell hit the nail on the head during his press conference, deeming it “unlikely that the Committee will reach, by the March meeting, a level of confidence” sufficient to begin lowering its rates.

The Federal Reserve wants to lower its rates in the coming months, after having raised them 11 times between March 2022 and July 2023, to curb high inflation.

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