The Federal Reserve (Fed) released the minutes of its November meeting on Tuesday, November 26, indicating that Fed officials expect inflation to continue cooling off. If the pace of price increases further slows down and the labor market remains strong, the Fed will gradually lower interest rates.
The minutes included several statements showing officials are satisfied with the decreasing rate of inflation, although it currently remains above the Fed’s 2% target.
As a result, they did not specify a particular time or degree for the rate cut. The minutes stated, “Participants discussed that a gradual transition to a more neutral policy stance over time is likely to be appropriate if data and expectations remain broadly consistent, inflation continues to decline to 2%, and the economy remains close to its maximum employment level.”
The Federal Open Market Committee (FOMC) unanimously voted during the meeting to lower the benchmark interest rate by 0.25 percentage points, setting the rate between 4.5% to 4.75%, a smaller cut compared to September’s 0.50 percentage points reduction.
Market expectations suggest that the Fed might cut rates again in December. However, concerns over President-elect Trump’s tariff plans potentially causing inflation are weakening confidence in further rate cuts. The probability of a rate cut in December has gradually decreased to below 60%, and the expected reduction by the end of 2025 is only 0.75 percentage points.
FOMC members also acknowledged the uncertainty in the market. Moreover, the level at which the “neutral” rate should be maintained to neither stimulate nor restrain economic growth remains uncertain.
“Many participants noted that the uncertainty surrounding the level of the neutral rate was making the assessment of monetary policy accommodation more complex, and they believed a gradual reduction in policy accommodation was appropriate,” the minutes stated.
Currently, Fed officials believe that the Gross Domestic Product (GDP) in the United States has been “steadily growing” this year, and the economic conditions are expected to remain robust.
Policymakers have expressed concerns about the labor market. In October, nonfarm payrolls increased by only 12,000 people, with the weak growth mainly attributed to hurricanes in the Southeast and strikes.
However, officials still maintain that the labor market is generally stable. The minutes noted, “Participants generally indicated that…there were no signs of rapid deterioration in labor market conditions, and layoffs remain low.”