FOMC Minutes Show “Many” Members Suddenly Favor More Gradual Rate-Cutting-Cycle

In summary: all of a sudden we go from basically no dissents about slashing rates (pre-election) to “many” thinking slow-down and some thinking “pause” the cutting cycle completely?

Fed minutes TL/DR: it appears Trump won

— zerohedge (@zerohedge) November 26, 2024

*  *  *

Since the last FOMC meeting – just days after the election on November 7th – bonds, the dollar,m and stocks have rallied (excluding the election reaction before the Fed) and crude oil and gold have been dumped (hit most recently amid ‘peace’ headlines and Bessent’s appointment)…

Source: Bloomberg

And while that has been going on, US Macro data has serially un-impressed… having soared higher since before the big cut in September…

Source: Bloomberg

…interesting that the data started to disappoint right after Trump’s Red Sweep was confirmed.

Rate-cut expectations have continued to slide since the last FOMC with less than three full cuts now priced in by the end of 2025…

Source: Bloomberg

But, the odds of a December cut have jumped in the last couple of days…

Source: Bloomberg

Additionally, since The Fed began cutting, the Reverse Repo facility has been dramatically drained…

Source: Bloomberg

Recent remarks from Fed officials have seen many echo the line in the statement that risks to the Fed’s mandate are roughly in balance. However, Governor Bowman, the most hawkish on the Fed, sees greater risks to the price stability mandate. Many are also keeping their options open, in fitting with Powell, as they wait to see all the data available before acting. Powell acknowledged that inflation is on a “sometimes bumpy” path back to 2%, but he does expect inflation to continue to come down towards the 2% goal.

Nonetheless, after recent inflation data he had said the economy is not sending signals the Fed needs to be in a hurry to lower interest rates.

So what does The Fed want us to hear from the Minutes?

Key highlights from the FOMC Minutes:

• Some say Fed could pause easing and hold rates at restrictive levels if inflation remains elevated

• Many said uncertainty over the neutral rate level makes it appropriate to reduce restraint gradually

• Some said easing could be accelerated if labor market weakened or activity faltered

• Some judged downside risks to jobs market and economy had diminished

• Participants anticipated it would be appropriate to move gradually towards a more neutral stance

• Almost all agreed that risks to achieving dual mandate goals remain roughly in balance

• Some said it might be appropriate in the future to consider setting the overnight reverse repo rate to the bottom of the Fed Funds Rate target

• Many saw excessive cooling in the jobs market as having diminished somewhat since September

• Fed staff forecast called for economic conditions to remain solid, as in its previous assessment: 2024 GDP growth projection seen higher

Some more specifics:

“Many” senior Federal Reserve officials said uncertainty about the so-called neutral level of interest rates supported a more gradual approach in reducing U.S. borrowing costs.

“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 more gradually,” the minutes of the November meeting said.

And suddenly, post-Trump-victory, “some” Fed members think a “pause” is necesary:

“In discussing the positioning of monetary policy in response to potential changes in the balance of risks, 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.”

Chairman Jerome Powell and other senior officials called the elevated readings of inflation a “bump” and they predict more bumps in the future. Still, they continue to believe inflation will slow toward their 2% goal by 2026.

“Incoming data generally remained consistent with inflation returning sustainably to 2%,” the minutes said.

Read the full Minutes below: