US Fed sees interest rates coming down ‘gradually’, minutes show

WASHINGTON – US Federal Reserve officials expect inflation to keep cooling, signalling a gradual approach to interest rate cuts if price increases ease further and the job market remains strong, minutes of their recent meeting showed on Nov 26.

If data came in about as expected with inflation moving towards policymakers’ 2 per cent target, while employment remained solid, “it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes said.

Earlier in November, central bank officials voted to lower the benchmark lending rate by a quarter-percentage point, bringing it to a range between 4.5 per cent and 4.75 per cent.

This came after a larger rate cut in September.

But it remains uncertain where rates should be held so that the economy does not need stimulus or policy restraint.

For now, Fed staff noted that gross domestic product has “expanded solidly so far this year” and that economic conditions should remain robust.

While there remain some sources of underlying inflation, data “generally remained consistent with inflation returning sustainably to 2 per cent,” the minutes noted, even if this process could take longer than expected.

Fed officials also expected that if interest rates were adjusted appropriately over time, “the labour market would remain solid,” even as recent indicators were impacted by labour strikes and hurricanes.

Policymakers noted as well that “there was no sign of rapid deterioration in labour market conditions, with layoffs remaining low,” while consumer spending remained strong.

But Fed officials cautioned that if there was a “change in the balance of risks,” the central bank could “pause its easing of the policy rate and hold it at a restrictive level.”

For example, this could be done if inflation remained elevated. But policy easing could be accelerated if the labour market slumped or economic activity faltered, minutes noted.

Economist Ryan Sweet of Oxford Economics said in a note: “The November (Fed) meeting occurred right after the election, which adds some uncertainty to the forecast for inflation given President-elect Donald Trump’s future use of tariffs.” AFP