Fed's November Meeting Suggests Slower Rate Cuts
According to BlockBeats, the Federal Reserve's Federal Open Market Committee (FOMC) decided to cut interest rates by a quarter-point during its November meeting, bringing the benchmark rate to a range of 4.50%-4.75%. The minutes from this meeting, released on the evening of the 26th, reveal that Fed officials believe inflation is easing and the risks of a significant slowdown in the economy and job market have diminished, supporting further rate cuts in the future.
However, the Fed emphasized a cautious approach, indicating that rate cuts would be gradual and data-dependent. If inflation data does not meet expectations, the pace of rate cuts could slow or even pause. During discussions on monetary policy, participants anticipated that if data aligns with expectations, inflation continues to decline towards 2%, and the economy remains near maximum employment, a gradual shift towards a more neutral policy might be appropriate.
Some analysts suggest that a slower pace of rate cuts could delay the peak of the Bitcoin bull market following profit-taking after Trump's election victory. The meeting minutes also disclosed that all 19 officials unanimously agreed on the quarter-point rate cut. Some officials noted that the risks of inflation rising have not changed significantly, while the downside risks to economic activity or the labor market have lessened.
Officials highlighted the need to balance the risks of monetary policy being too loose or too tight. A policy that is too loose might hinder further efforts to combat inflation, while one that is too tight could excessively weaken the economy and employment. Some participants indicated that if inflation remains high, the FOMC might "pause" easing policy rates and maintain them at restrictive levels.
Additionally, many officials acknowledged that the uncertainty surrounding the so-called neutral rate complicates the assessment of the degree of monetary policy restriction. The neutral rate is the policy level that neither restricts nor stimulates economic growth. Estimates of the neutral rate have been rising over the past year. Chicago Fed President Austan Goolsbee stated his forecast for the neutral rate is close to the median estimate of 2.9% from the Fed's September dot plot.
The Fed is scheduled to hold its December FOMC meeting on December 18. Goolsbee expects the Fed to continue cutting rates, adopting a stance that neither restricts nor promotes economic activity, unless there is compelling evidence of economic overheating. Minneapolis Fed President Neel Kashkari, known for his hawkish stance, also supports a December rate cut, considering it a reasonable debate.
Despite the ongoing economic resilience and recent strong inflation data in the U.S., several Fed officials have urged caution regarding future rate cuts. Fed Chair Jerome Powell hinted at a cautious approach to rate cuts, stating that the economy does not signal an urgent need for rate cuts, allowing for careful decision-making. Powell's hawkish signals have led to a decrease in market expectations for a December rate cut, but following the release of the FOMC minutes, the probability of a December rate cut increased slightly from about 52% to 66.6%, with only a 33.4% chance of pausing rate cuts.
Market and institutional forecasts suggest the Fed will slow its rate-cutting pace next year. Nomura Securities recently predicted that the Fed will pause rate cuts at the December meeting and will only cut rates by a quarter-point each in March and June 2025. Cathay United Bank's Chief Economist Lin Qichao stated last week that the Fed will still cut rates by a quarter-point in December this year, with additional cuts in March and June next year.
