U.S. FOMC Meeting Minutes (November 6-7, 2024)

Fed minutes show clear preference for gradual policy normalization

• The minutes from the November 6-7th Federal Open Market Committee (FOMC) meeting released today indicate that Committee members viewed the recent data as consistent with inflation returning sustainably to 2 percent. 
• Committee members "indicated that they remained confident that inflation was moving sustainably toward 2 percent." They also viewed recent data as consistent with "labor market conditions remaining solid".
• On the policy decision, "almost all participants judged that the risks to achieving the Committee's employment and inflation goals were roughly in balance". Additionally, there were concerns regarding "uncertainties concerning the level of the neutral rate of interest" among many participants, who expressed a view that this made it appropriate to reduce policy restraint gradually.
• The minutes contained near-identical language to the previous minutes regarding future decisions, indicating that "participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time."  The "if" there is important, as members also discussed that they could potentially need to slow down or pause interest rate cuts if progress on inflation stalled.  

Key Implications

• Today's minutes come as no surprise given Fed communications since the September meeting and the previous meetings. They reinforce that while policy is normalizing, it is not on a preset path. The FOMC will be sensitive to the data, particularly on the job market and inflation, in judging the pace of interest rate cuts as they bring rates down from their current restrictive level, to a more neutral setting. 
• Of course there is a fair amount of uncertainty on where that "neutral" setting is for the fed funds rate. Given this uncertainty, the FOMC is in many ways driving in a fog – they don’t want to swerve too far in either direction, and either risk inflation picking up again if policy is too stimulative or risk a recession if policy is to restrictive. They judge their best course of action is to favor a gradual pace of normalization.    

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