Federal Reserve officials are optimistic about the current state of inflation and employment, suggesting that more interest rate cuts are possible, though they plan to proceed cautiously. This confidence was captured in the minutes from their November meeting, which were released on Tuesday.
Throughout the meeting, various indications pointed to a sense of comfort among the officials regarding inflation rates. Even though inflation, by most standards, remains above the Fed’s target of 2%, the members of the Federal Open Market Committee (FOMC) are convinced that the labor market remains robust. With this backdrop, they suggested that additional rate cuts are on the horizon, although specific timing and extent remain unspecified.
“In discussions about future monetary policy, participants projected that if the data continues to align with expectations—specifically, if inflation drops steadily to 2% and employment stays near its peak—the approach would likely be to gradually transition towards a neutral policy stance,” as noted in the minutes.
During this meeting, the FOMC unanimously agreed to decrease its benchmark interest rate by a quarter percentage point, setting the target between 4.5% and 4.75%. Market predictions suggest another potential cut in December, though rising concerns over President-elect Donald Trump’s tariff strategies, which could drive inflation higher, have dampened these expectations somewhat.
The meeting took place just two days following the heated presidential election, which saw the Republican victor poised to commence his second term in January. Interestingly, the minutes barely mention the election, except for noting a brief spike in market volatility before calming post-November 5 results. Also absent was any discussion about the possible economic consequences of Trump’s proposed fiscal policies, which indicate plans for tax cuts and aggressive deregulation.
Members did, however, acknowledge a general sense of uncertainty about future conditions. They also expressed doubts about when they might reach a “neutral” interest rate where growth is neither stimulated nor stifled.
“Numerous participants remarked that uncertainties about determining the neutral rate of interest complicated evaluating the strictness of monetary policy. Therefore, many agreed it would be prudent to dial back policy restrictions gradually,” the minutes read.
With mixed signals about inflation and uncertainty surrounding Trump’s forthcoming policies, traders have become more cautious, reducing expectations for upcoming rate cuts. The likelihood of a rate decrease in December has slipped below 60%, with speculated reductions totaling only three-quarters of a percentage point by the end of 2025.
During the meeting, there was substantial discussion about advances in inflation and a generally steady economic forecast. Policymakers recently have shared their belief that current inflation levels are partly due to rising shelter costs, which are expected to moderate as rent growth slows and is reflected in the data.
“The majority of participants believed that, despite month-to-month volatility, the incoming data largely supported a sustainable return of inflation to 2%,” said the document. “Cited were several factors likely to continue exerting downward pressure on inflation, including diminishing business pricing power, the still-restrictive nature of the Committee’s monetary policy stance, and steady longer-term inflation expectations,” it added.
Concerns about the labor market had been present, given that nonfarm payrolls increased by only 12,000 in October, a slowdown largely attributed to storms in the Southeast and labor strikes. Nonetheless, officials conveyed that the labor market remains generally strong.
“Participants typically noted… there was no evidence of a rapid decline in labor market conditions, with layoffs staying minimal,” according to the minutes.
