The monetary policy of the Federal Reserve (Fed) must remain “in a restrictive position for a certain period of time” in order to ensure that inflation returns to the 2% target, according to the minutes of the last meeting of the Fed, released Wednesday.
According to the report, participants generally stressed the importance of a cautious and data-driven approach to future rate movements, to ensure that inflation moves clearly towards the Monetary Committee’s target. of the Fed (FOMC).
At the last meeting of 2023, on December 12-13, the FOMC had maintained its rates in the range between 5.25% and 5.50%, for the third meeting in a row, a position which could still persist during the next one, which is to be held on January 30 and 31. Analysts largely expect rates to remain at their current level, according to CMEgroup’s FedWatch monitoring tool.
After 11 increases since March 2022, and rates which have, in total, increased by more than 5 percentage points, they have now reached their peak, or almost, with Fed President Jerome Powell now seeking to push back expectations. of the beginning of a flood, while inflation has approached 2%.
Still a high degree of uncertainty regarding the economic outlook
The increase in the PCE index, which is the one favored by the Fed, fell 2.6% year-on-year in November, the lowest since the start of 2021with underlying inflation (which excludes variations in food and energy prices, considered more volatile) at 3.2%.
Another measure of inflation, the CPI index, on which pensions are indexed, showed a slight drop in November, 3.1% over one year compared to 3.2% in October. The FOMC, however, considered that the components of the index showed insufficiently uniform movement to consider loosening monetary policy, in particular due to a persistent rise in underlying services-related inflation.
Especially since the participants in the meeting believe that there is still a high degree of uncertainty regarding the economic outlook, even if economic activity turned out to be more solid than expected. But both current geopolitical risks and the rapprochement of industrial production (nearshoring or friendshoring) can have negative effects on prices and revive inflation, they underlined during the meeting.