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Washington: Most Federal Reserve officials last month flagged concerns over moving too quickly to cut interest rates, indicating such risks outweighed keeping borrowing costs elevated for too long.

The minutes of the January 30-31 Federal Open Market Committee meeting showed policymakers remain attentive to the trajectory of inflation, with some worried that progress toward the central bank’s 2% target could stall. Together, the record reinforced the Fed’s preference for more evidence that inflation is firmly on a downward path.

Fed officials agreed borrowing costs were likely at their peak, but the exact timing of the first interest-rate cut remained unclear.

“Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%,” according to the meeting minutes released Wednesday.

Only a “couple” of officials pointed to risks to the economy from waiting too long to cut.

“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained,” the minutes showed.

Economic data has largely surprised to the upside since the central bank’s last gathering, disrupting the rapid slowing in inflation seen at the end of 2023 and validating the Fed’s cautious approach.

Payrolls Jump
US employers boosted payrolls by the most in a year, and the consumer price index rose by more than expected across the board. Economists forecast the Fed’s preferred gauge of underlying inflation to rise at the fastest pace since early 2023 when it’s released next week.

Markets have significantly dialed back expectations for early and rapid rate cuts as a result, with traders in the federal funds futures market now betting the Fed will first lower rates in June. Investors also expect three to four cuts in 2024, a pace more in line with policymakers’ median projection in December.

Fed officials will update their projections for rates and the economy at their March 19-20 meeting. Ahead of that gathering, Fed Chair Jerome Powell will have an opportunity to offer fresh thoughts on the outlook when he testifies before Congress in early March.

  • Published On Feb 22, 2024 at 08:00 AM IST

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