U.S. FOMC Meeting Minutes (January 28-29, 2025)

Fed minutes reveal committee not yet convinced inflation is tamed

• The Federal Open Market Committee (FOMC) held interest rates constant at the conclusion of its January 28-29 meeting. The minutes for this meeting, released today, confirmed that the FOMC is not in a hurry to reduce interest rates further. 
• The minutes showed some confidence that inflation had made recent progress towards the committee's goal of price stability. For example, "several participants noted that cumulative inflation over the past 3, 6, or 9 months showed greater progress than 12 month measures" and most participants "commented that month-over-month inflation readings in November and December had exhibited notable progress toward the Committee's goal of price stability". 
• Despite this, participants still emphasized that additional evidence of disinflation was needed. In part, this was because of the prevalence of upside risks to the inflation outlook. In particular, participants cited the possible effects of potential changes in trade and immigration policy, the potential for geopolitical developments to disrupt supply chains, or stronger-than-expected household spending.
• Participants generally expected that inflation would continue to move towards 2 percent, under appropriate monetary policy. Some participants also "remarked that reported inflation at the beginning of the year was harder than usual to interpret because of the difficulties in fully removing seasonal effects," suggesting that January's spike in CPI inflation, which was released after this meeting, may be interpreted cautiously by the committee. 
• Participants viewed labour market conditions as solid and consistent with their goal of maximum employment, pointing to recent developments in payrolls, the unemployment rate, and job vacancies, all as consistent with stable labour market conditions. 
• On the policy decision, the minutes indicate that the move to maintain interest rates was supported by all participants. In discussing the outlook for monetary policy, "participants observed that the Committee was well positioned to take time" to assess the economy, labour market, and inflation.

Key Implications

• Today's minutes make it clear that the FOMC is in no hurry to reduce interest rates further and that their pause in interest rate reductions could last several meetings. Indeed, the minutes were punctuated by a few declarations that participants felt they could take their time to assess how labour markets and prices evolve to the adjustments they have already made and to the evolution of the economy. 
• In addition to uncertainty regarding potential changes in federal government policies and their impact on inflation and employment, these minutes also showed uncertainty about what the neutral rate would be for the committee's policy rate. In the discussion on the outlook for inflation, a few participants noted that the current federal funds rate may not be far from neutral, limiting the scope for reductions in the future.

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