© Reuters. FILE PHOTO: Federal Reserve Board Chairman Jerome Powell speaks during a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, U.S., December 13, 2023. REUTER
By Howard Schneider
Get ready! Federal Reserve officials held an extensive debate about an imminent turn in U.S. monetary policy in December. Concerns were voiced about how long the economy could withstand the current high interest rates, and discussions started about when to halt the rundown of its balance sheet. These revelations are from the minutes of the Dec. 12-13 meeting.
Fed Chair Jerome Powell had previously outlined the broad plans of the meeting, stating that the central bank was likely done raising interest rates. Instead, they are expected to begin reducing borrowing costs by the end of 2024.
The minutes did not directly reveal when rate cuts might start, but they showed a growing sense that inflation is being successfully controlled, and a growing concern about the risks that “overly restrictive” monetary policy may pose to the economy.
It was an interesting year for the Fed, starting with uncertainty about controlling inflation and ending with growing hope that inflation could be tamed while avoiding a predicted recession. The Fed is also debating when to stop the rundown in its asset holdings, a policy that has been restricting economic activity as part of the fight against inflation.
“Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings in particular,” the minutes said.
There were still risks, as some participants felt that the Fed had received all the help it could expect from improved supply chains to lower inflation, with tight monetary policy still needed to dampen demand and new geopolitical risks possibly disrupting inflation progress.
However, overall the risk of renewed inflation “diminished,” while “a few” Fed officials believed that the Fed would soon face a “tradeoff” between its dual goals of controlling inflation and maintaining high rates of employment.
