U.S. FOMC Meeting Minutes (November 1-2, 2022)

Brett Saldarelli, Economist | 416-542-0072 

Date Published: November 23, 2022

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Fed minutes suggest a more gradual pace of rate hikes ahead

  • The minutes from the November 1-2, 2022 Federal Open Market Committee (FOMC) meeting showed that the Fed remains committed to bringing inflation back to target, but will likely moderate the pace of rate hikes. 
  • On the progression of the economy, the Committee members noted that "recent indicators pointed to modest growth of spending and production. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures."
  • Participants discussed the length of the lags in the economy's response to monetary policy, noting that "monetary policy had clearly influenced financial conditions and had had notable effects in some interest rate-sensitive sectors, the timing of the effects on overall economic activity, the labor market, and inflation was still quite uncertain, with the full extent of the effects yet to be realized".
  • Committee members anticipated that "ongoing increases in the target range for the federal funds rate would be appropriate in order to attain a sufficiently restrictive stance of policy to bring inflation down over time." However, future rate hikes will take into account previous increases in the target range in addition to the prevailing financial and macroeconomic backdrop. Specifically "a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate." Given the uncertain lags, a slower pace would better allow the FOMC to assess its progress on its goals.

Key Implications

  • The minutes confirmed that reining in inflation remains the principal concern of the Fed. The uncertainty surrounding the Russia-Ukraine conflict will continue to add to the upside risk. While labor market conditions remain tight, there has been a softening in recent economic data, which is in line with the Fed's expectations. Nonetheless, the path to restoring price stability is uncertain as monetary policy works with a lag, which will continue to dampen economic activity before inflation begins to wane. 
  • While October's CPI print surprised to the downside, inflation remains well above the Fed's 2% target. With economic activity expected to continuing moderating into 2023, recession fears continue to capture headlines, with some surveys showing that the probability of a recession within the next 12-months having surpassed 60%. These fears continue to be reflected in the spread between the U.S. 10-year and 2-year treasury yields, which remains in negative territory. We expect the Fed will continue to raise rates to a peak of 5%, before pausing to monitor the impacts of its actions on economic activity and inflation.