Minutes from Federal Reserve's December meeting largely as expected

At December’s meeting, US policymakers acknowledged the potential for interest rate cuts by the end of the year.

4 January 2024

The minutes from the December Federal Reserve (Fed) committee meeting were much as expected, with no obvious timeline for policy easing in the commentary just yet, while acknowledging that the policy rate would see cuts by the end of 2024 if indeed they have peaked at current levels. So, in total, the minutes were ambiguous enough to be slightly more hawkish than Fed Chair Powell was in the December press conference, which goes against the current market narrative, but not as hawkish to defy market expectations of the likely rate cutting path.

We remain in ‘wait and see’ mode on the inflation backdrop – a few more quarters of continual softening in this regard will be the obvious green light for them to become less restrictive. The committee knows that growth is running below the longer-term potential, explicitly commenting in the minutes on this fact and that will only be reinforced if they remain too restrictive for too long – at some point the economics will force their hand to act, and in an election year too.