November FOMC Minutes: Fed Leans Toward Rate Stability As Inflation Eases

BY Benzinga | ECONOMIC | 11/21/23 02:15 PM EST

Fed participants determined the current interest rate level of between 5.25% and 5.5% is restrictive and putting downward pressure on economic activity and inflation, Federal Open Market Committee minutes from the Fed’s November’s meeting revealed Tuesday.

This stance signals a potential end to the Fed’s intensive rate hike campaign initiated last year, aligning with market forecasts and recent encouraging inflation data. Fed members also underlined that financial conditions tightened significantly in recent months.

Earlier this month, the Fed unanimously decided to maintain the federal funds rate unchanged, in a move likely influenced by a series of lower-than-predicted inflation reports.

Fed Opts To Hold Rates In Restrictive Territory, Needs Further Proof Of Sustained Inflation Declines

The primary takeaway from the November’s FOMC minutes is that participants believed that maintaining the current policy stance, which is considered restrictive, would help advance the committee’s objectives while affording them additional time to collect more data for assessing this progress.

The majority of participants still continue to perceive upside risks for inflation and a potential decline in economic activity. Participants also observed that there has been only modest progress in reducing inflation in core services, excluding housing.

Policymakers emphasized the need for additional proof to assure them that inflation is definitively on track toward the committee’s 2% target.

They stated that additional monetary policy tightening would be warranted if incoming data suggests inadequate progress toward the committee’s inflation goal.

In his recent remarks, Fed Chair Jerome Powell emphasized the importance of proceeding “carefully,” effectively suggesting a reduced likelihood of another rate hike before the year’s end.

Nevertheless, during a panel discussion at the International Monetary Fund earlier this month, Powell cautioned that “inflation has given us a few head fakes,” adding that “if it becomes appropriate to tighten policy further, we will not hesitate to do so.”

Market Reactions

Before the release of the minutes, markets had already priced in the likelihood of unchanged rates at the Dec. 13 meeting. Looking ahead, traders are speculating about four possible rate reductions in the next year, with the first expected as soon as May.

Fed rate expectations were little moved after the Fed minutes.

The U.S. Dollar Index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF , initially saw a slight uptick immediately after the release of the FOMC minutes, but later retraced those gains around 2:30 p.m. in New York.

The FOMC minutes had a limited impact on the stock market. The SPDR S&P 500 ETF Trust (SPY) remained relatively stable, with a marginal decline of 0.2% during the session. Meanwhile, the Nasdaq 100, represented by the Invesco QQQ Trust , held at negative 0.7% performance throughout the day.

Investor attention now turns to Nvidia‘s third-quarter earnings, scheduled to be unveiled after the closing bell.

Read now: Magnificent 7 Take Center Stage In Hedge Fund Portfolios: Analysts Warn Of Extreme Concentration

Photo via Shutterstock.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.