Has the interest rate hikes come to an end?

The US Federal Reserve (Fed) published the minutes of the meeting of the Federal Open Market Committee (FOMC) held on December 12-13, 2023.

In the minutes of the last meeting, where the policy rate was kept unchanged at 5.25-5.50 percent, the highest level in 22 years, it was stated that all Fed officials observed that there was clear progress towards the 2 percent target last year regarding inflation.

In the minutes, attention was drawn to the improvement in both headline and core inflation, and it was noted that the progress among the components of inflation was uneven, that energy and basic goods prices had recently fallen or changed little, but basic services prices were still increasing at a high rate.

In the minutes, it was stated that bank officials discussed various risks that may affect policy decisions in the future, and it was stated that the upside risks to inflation have decreased, but inflation is still well above the target and the risk of stopping progress towards price stability continues.

FED OFFICIALS DRAW ATTENTION TO RISKS

It was noted in the minutes that some officials pointed out the uncertainty regarding how long the restrictive monetary policy stance should continue and the downside risks to the economy of an overly restrictive stance, and a few officials suggested that the Committee may face a choice between its goals in the coming period.

“When discussing the policy outlook, officials considered that the policy rate was likely at or near the peak in this tightening cycle, but noted that the course of policy would depend on how the economy develops,” the minutes said.

The minutes emphasized that almost all of the Fed officials predicted that a lower target range for interest rates would be appropriate by the end of 2024 to reflect the improvement in the inflation outlook, but officials also pointed out that there is unusually high uncertainty regarding the outlook and that it is possible for the economy to develop in a way that could lead to a further increase in interest rates. It was reported that he did.

“Several officials also observed that conditions may need to keep the target range at its current level for longer than they anticipated,” the minutes said.

It was noted in the minutes that bank officials generally emphasized the importance of maintaining a careful and data-based approach in making monetary policy decisions, and it was reiterated that it would be appropriate for monetary policy to remain restrictive for a while until inflation clearly decreased.

The Fed’s next meeting will be held on January 30-31.