The US Federal Reserve's Federal Open Market Committee (FOMC) decided to cut rates by one notch at its November meeting, lowering the benchmark interest rate to the 4.50%-4.75% range. And on the evening of yesterday (26th), the Fed officially released the minutes of the November FOMC meeting. At the time, Fed officials said they believe inflation is easing, and the risks of a significant slowdown in the economy and the labor market have diminished, so they support further rate cuts in the future.
But they also emphasized that they will take a cautious approach, cutting rates "gradually" based on data performance, and if inflation data fails to meet expectations, the pace of rate cuts may slow or even pause.
In discussing the outlook for monetary policy, participants expected that if the data is consistent with expectations, inflation continues to decline to 2%, and the economy remains close to maximum employment, then a "gradual" shift to a more neutral policy stance may be appropriate.
However, some analysts believe that after the Trump rally profit-taking, the Fed's slower pace of rate cuts may delay the emergence of the Bitcoin bull market peak.
Will the Fed's pace of rate cuts slow down?
The minutes also revealed that at this month's meeting, 19 officials unanimously approved a one-notch rate cut. Some officials believe that the upside risks to inflation have hardly changed, while the downside risks to economic activity or the labor market have weakened.
Some officials also pointed out that monetary policy needs to balance the risks of easing policy too quickly or too slowly, as easing too quickly could hinder further efforts to curb inflation, while easing too slowly could excessively weaken the economy and employment. Some participants indicated that if inflation remains stubbornly high, the FOMC may "pause" the easing of the policy rate and maintain it at a restrictive level.
In addition, many officials also believe that the uncertainty about the so-called neutral rate level makes it difficult to assess the degree of policy restraint. The neutral rate is the level at which monetary policy neither restricts nor stimulates economic growth.
Officials' estimates of the neutral rate have continued to rise over the past year. Chicago Fed President Austan Goolsbee said on Tuesday that his forecast for the neutral rate is close to the median of the Fed officials' projections in the September dot plot, which is 2.9%.
Fed officials support rate cut in December
The Fed will hold its December FOMC meeting on December 18. Goolsbee this week expects the Fed to continue cutting rates, taking a stance that is "neither restrictive nor stimulative" "unless there is some compelling evidence of economic overheating, I don't see a reason not to continue lowering the federal funds rate."
Last week, he reiterated his support for further rate cuts and expressed openness to acting at a slower pace.
On the same day, Neel Kashkari, the so-called "hawk" president of the Federal Reserve Bank of Minneapolis, explicitly supported the Fed cutting rates in December, saying it is still reasonable for the central bank to consider another rate cut in December.
As of today, as far as I know, we are still considering a 25 basis point rate cut in December - this is a reasonable debate for us.
Further reading: Fed officials support continued rate cuts, even the hawkish Fed heavyweight Kashkari admits: A rate cut in December is reasonable
FedWatch: Probability of rate cut in December surpasses 60%
However, given the continued economic resilience of the US and the recent strong inflation data, several Fed officials have urged caution on future rate cuts. Fed Chair Powell also hinted at a hawkish stance earlier this month, suggesting officials will be "cautious" in cutting rates.
The economy is not sending any signals that urgently require rate cuts, and the better economic conditions give us the ability to be cautious in our decision-making.
Powell's hawkish signals have also caused the market's expectations for another one-notch rate cut in December to plummet, but after the release of yesterday's FOMC minutes, the market has slightly increased its bets on a one-notch rate cut in December, rising from around 52% yesterday to the current 66.6%, with the probability of a rate hike pause now only 33.4%.
However, the market and institutions also all expect the Fed to slow the pace of rate cuts next year, with Nomura Securities' latest forecast indicating that the Fed will pause rate cuts at its December policy meeting and only cut rates by one notch in March and June 2025; Cathay United Bank's chief economist Lin Chi-chao said last week that the Fed will still cut rates by one notch in December this year, but in March and June next year, the Fed will cut rates by one notch each time.
