FOMC Meeting Minutes Suggest a Slowdown in Hiking Rates

Wednesday’s release of the November 2nd FOMC meeting minutes suggests they are backing off their aggressive tightening agenda. Instead of hiking rates another 75 bps at the upcoming December 14th meeting, we are likely to see only a 50 bps hike. One notable takeaway from the minutes was the references to the difference in support for slowing the pace of tightening now and those raising their estimates of the terminal rate.

Within the notes, a few Fed officials argued it could be “advantageous” to wait to slow the pace of raises until the policy rate was “more clearly in restrictive territory” and that there were clearer signals inflation was slowing. Most of the members support slowing down the pace of interest rate rises soon. The minutes also indicated heightened concern about financial stability risks associated with the Fed’s plans to rapidly increase borrowing costs, suggesting a slowdown in the pace of rate hikes is warranted. 

Questions remain as to whether slowing the pace of monetary restraint is the most prudent outcome to tame inflation and balance economic growth. There is a confluence of variables indicating that inflation pressures have peaked. Growth in the M2 money supply has been essentially zero since late last year, and the dollar has been very strong, which enhances import purchasing power. Broad commodity prices have been weak, and soaring interest rates have brought the housing and auto markets to its knees.

Putting these developments together means that the supply and demand for money and goods have come back to some semblance of balance. Based on Fed funds futures, the level of two-year Treasury yields, and the positive market reaction in both equities and long-duration bonds in the past month, a 50 bps hike is the most likely policy outcome. It may be too soon to say if the Fed will take a wait and see approach after the next meeting, but one could make a strong case that the Fed is close to a pause in policy tightening.

Image sourced from Shutterstock

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.