Fed Minutes: High Rates for “Some Time” Forward

According to the minutes of the December meeting, Fed members confirmed that they are committed to fighting inflation, so they expect to keep interest rates high until more progress is made. In this sense, they expressed the importance of maintaining a sufficiently restrictive policy given that inflation is unacceptably high.

In particular, members stressed that it would be appropriate to continue with the current policy until incoming data ensure that inflation will follow a sustained downward path of 2%, likely to “take some time”. In addition, the members highlighted the following: “given the persistent and unacceptably high level of inflation, historical experience cautioned against the implementation of a premature easing of monetary policy”. 

On the other hand, several participants stressed that it would be essential to communicate clearly that a slowdown in the pace of rate increases was not an indication of a weakening to achieve its objective of price stability or a judgment that inflation was already on a persistent downward path.

Finally, the minutes reflected that no Committee member expects a rate cut during 2023, contrary to market expectations. The market anticipates the possibility of a small reduction that would lead the federal funds rate to 4.8% (vs. 5.1%, updated by the Fed in December). 

Expected Path for the Federal Funds Rate

Source: Goldman Sachs

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