New York, USA (CNN) — The Federal Reserve released the minutes of its latest meeting on Wednesday, in which it provided more clues about the central bank’s thinking about inflation and interest rate hikes.
The Federal Reserve raised interest rates by three-quarters of a percentage point at its meeting on November 2, the fourth consecutive hike of such a large scale. But Fed Chairman Jerome Powell suggested at a press conference that the Fed may soon start slowing the pace of increases.
The minutes of the meeting showed that many other federal policymakers agreed with Powell’s assessment.
“A number of participants noted that as monetary policy approaches a position that was sufficiently restrictive to meet the committee’s objectives, it would be appropriate to slow the pace of increase in the target range for the federal funds rate,” the Fed said in the minutes.
The bank added that “the vast majority of respondents felt that a slowdown in the pace of increase would likely be appropriate soon.”
Other Fed members, most notably Vice Chair Lyle Brainard, have hinted in a number of recent speeches to a slower pace of increases. However, there were confusing signals from other Fed officials, who continued to stress that inflation will not go away and must be brought under control.
To that end, the Fed said in the minutes that inflation remains “stubbornly high” and “more persistent than expected.”
Investors are hoping for a lower interest rate hike
With that in mind, traders are now pricing in the over 75% chance that the Federal Reserve will raise interest rates by just half a point at its December 14 meeting, according to CME Futures. This is higher than the 52% probability of a half point increase a month ago, but less than the 85% probability of a half point increase just last week.
The latest batch of inflation reports seems to indicate that the pace of runaway price increases is finally starting to slow down to manageable levels. The job market also remains relatively healthy, though the latest jobless claims numbers are higher than last week.
But as long as the labor market remains strong and inflationary pressures subside, the Fed is likely to roll back its rate hikes.
Some experts are increasingly concerned that if the Fed goes too far with interest rates, the increases could eventually slow the economy too much and potentially lead to much higher unemployment, job losses and even a recession.
The interest rate hike by the Federal Reserve had a clear impact on the housing market, as higher mortgage rates helped to have a negative impact on home sales.
However, Wall Street is becoming increasingly confident that the Fed may be able to reverse the so-called “soft landing”. The Dow rose 14% in October, its best month since January 1976. The Dow rose another 4.5% in November and is now down just 6% this year.
The S&P 500 and Nasdaq have also rebounded significantly since October, but both broader market indices have remained sharply lower for the year than the Dow.