Deceleration of US interest rate hikes should come soon, points out FOMC minutes

The minutes of the last meeting of the Open Market Committee (FOMC, for its acronym in English), released this Wednesday afternoon (23), showed that a significant majority of Fed directors believe that a slowdown in the pace of interest rate hikes is likely to will be appropriate soon, as debate rages over the implications of sharp monetary tightening by the US central bank.

The document refers to the last Fomc meeting, which took place between November 1 and 2, with the increase in interest rates in the United States to the range between 3.75% and 4.00% per year, with an advance of 0.75 percentage point for the fourth consecutive time.

Committee members highlighted that a slower pace of rate hikes should allow the Fomc to assess the impact of the hike against its goals of taming inflation, also taking into account the longer-term effects of monetary policy.

“A substantial majority of participants felt that a slowdown in the pace of increase was likely to be appropriate in the near future,” the minutes state. “The lags and uncertain magnitudes associated with the effects of monetary policy actions on economic activity and inflation are among the reasons cited for the importance of this assessment.”

While signaling smaller moves to come, policymakers said they still see little sign of inflation easing. However, some committee members expressed concern about the risks to the financial system if the Fed continues to advance at the same aggressive rate of hikes.

Some committee members indicated that “slowing the pace of increases could reduce the risk of instability in the financial system.” Others said they would like to wait to slow down. However, they see that the balance of risks in the economy is now tilted to the downside.

The market expectation was that the minutes could show the size of any misunderstanding that has begun to emerge in the central bank, as the Fed ends the effort to raise interest rates and begins to evaluate smaller steps for an eventual stop.

The Fed’s policy statement released alongside the Nov. 2 decision attempted to fill in any gaps, promising “continued increases” until rates are “tight enough” to control inflation, while also saying that the size of upcoming increases will take into account the “cumulative tightening” so far, as well as the fact that the impact of these increases may take time to be felt. What turned out not to be clear earlier this month is how far Fed officials felt they needed to raise rates, and how strongly the sense of risk is shifting to concerns about “overshooting” and doing more damage to the economy than expected. what is needed to control inflation.

The minutes of the last meeting released this Wednesday ended up reflecting statements that several Fed directors made in recent weeks, pointing to a slowdown in rates. The markets mostly expect the Fomc, after four increases of 0.75 points, to raise interest rates by 0.5 percentage points in December.

(with Reuters)

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