Following the recent decision by the Federal Reserve to maintain its current rates, anticipation and scrutiny surrounded the release of the meeting minutes, offering a potential glimpse into the future trajectory of interest rates. While widespread expectations point to a forthcoming pause in the December meeting, the disclosed minutes unveiled lingering concerns among FOMC members regarding the persistence or potential escalation of inflation. This opens the door to the possibility of further restrictive measures if necessary.
However, the belief remains that further hikes would only be necessary should there be a halt in the current progress being made in bringing inflation back to its target. Striking a delicate balance, the committee acknowledges the risks of both taking excessive action and refraining from additional restrictions. Future decisions will be approached with careful consideration, weighing incoming information and its implications on the economy alongside risk assessments.
Despite the prevailing confidence in a December pause, reflected in a 95% implied probability according to the CME FedWatch Tool, the meeting minutes offered no indication that rate cuts were even under consideration. This suggests that, at present, the FOMC is not contemplating such a move. The prevailing belief is that rates will remain restrictive until incoming data convincingly demonstrates a return to the 2% inflation target. According to the CME FedWatch Tool, there is a 28% probability of the first rate cuts occurring in March of the following year, with May being the more likely timeframe, carrying a 45% probability.
The market’s response included a partial recovery of the US dollar’s losses, with a cautious outlook prevailing as investors await additional data to validate the evolving trajectory of interest rates.
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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