This emerges from the minutes of their December meeting, which were published on Wednesday. According to almost everyone at the meeting, a lower interest rate level until the end of 2024 would be appropriate. The restrictive stance should initially be maintained until inflation falls clearly and sustainably, it said in a statement.
“Clear progress” has been made in combating inflation. Some participants stressed that there was “increased uncertainty” over how long the tight line would have to be maintained given the progress made in pushing down inflation. After the recent aggressive interest rate increases, the monetary authorities are taking a closer look at the risk of harmful effects of an “excessively restrictive” line on the economy.
Key interest rates at their highest
“Participants were of the view that the key interest rate has reached or is close to its peak in this tightening cycle,” according to the minutes of the December 13 interest rate decision published on Wednesday. “Clear progress” has been made in combating inflation.
However, they left it open as to when the Federal Reserve would want to change course. There was no significant reaction to the protocols on the stock exchanges. After a phase of sometimes sharp interest rate increases, the central bank recently paused three times in a row. According to the expectations of the financial markets, the Fed is likely to keep the key interest rate in the range of 5.25 to 5.50 percent at the end of the month. A first interest rate cut of a quarter of a percentage point is expected on the futures markets for March. In their interest rate outlook for 2024, the monetary authorities had announced a total of three steps downwards – i.e. a reduction in interest rates by 0.75 percentage points.
“There is no autopilot”
However, according to US Federal Reserve Commissioner Thomas Barkin, the US central bank is not committed to a monetary policy course this year. “There is no autopilot. And the data that comes in this year counts,” emphasized the president of the Richmond Federal Reserve District. However, the economic data in the coming months might strengthen the Fed’s belief that inflation will fall as expected, provided there are no unexpected shocks.
However, the restrictive stance should initially be maintained until inflation falls clearly and sustainably, according to the statement. They are prepared to cut interest rates if the decline in inflation continues in 2024. The timing of such a step remains uncertain.
