Federal Reserve Holds Course Amid Inflation Concerns: No Rate Cuts in Sight
With inflation hovering significantly above their 2% target, Federal Reserve officials have indicated that they’re not considering lowering interest rates anytime soon. The minutes from the Federal Reserve’s meeting on October 31 to November 1, 2021, provide a window into the thinking of the Federal Open Market Committee (FOMC) members. They believe that the monetary policy must remain restrictive enough to bring inflation back to the desired level.
Proceeding with Caution
Fed officials have expressed a willingness to proceed carefully, keeping an eye on the totality of incoming economic data and associated risks. The minutes, however, provided no evidence of discussions about when to start reducing rates, a sentiment echoed by Chairman Jerome Powell in his post-meeting conference. Despite market expectations for rate cuts, it seems the Fed is holding its ground.
Current Interest Rates and Treasury Yields
Currently, the Fed’s benchmark funds rate is set between 5.25% and 5.5%, the highest it has been in 22 years. The meeting also covered concerns about rising Treasury yields, which officials attributed to higher term premiums due to increased government borrowing to finance budget deficits.
Impact on Economic Growth
Policymakers also debated the implications of persistent changes in financial conditions on monetary policy. They predict a significant slowdown in economic growth in the fourth quarter from the 4.9% GDP growth in Q3. The risks to economic growth are skewed to the downside and inflation risks to the upside. The minutes noted that the current policy is restrictive and is expected to have a dampening effect on both economic activity and inflation.
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