US interest rates likely to stay high ‘for some time’: Fed minutes

Fed members expected that interest rates would need to remain high “for some time” – Copyright AFP Brendan SMIALOWSKI

US Federal Reserve officials expect interest rates will need to remain high “for some time” to tackle stubborn inflation, according to minutes of the most recent rate decision published on Wednesday.

The Fed announced last month that it would continue to hold interest rates at a 22-year high, and penciled in up to three rate cuts in 2024, sending US stock markets surging to new records.

Since then, Fed officials have looked to dampen the buoyant market expectations that cuts were imminent, stressing that inflation remains stuck above the central bank’s long-run target of two percent.

In December, the Fed’s rate-setting committee “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably” towards target, according to minutes of the meeting published Wednesday.

The document did not delve into details of a discussion Fed Chair Jerome Powell alluded to in last month’s press conference, about when it would be appropriate to start cutting rates.

Since peaking in 2022, the Fed’s favored inflation gauge has fallen sharply, reaching an annual rate of 2.6 percent in November.

So-called core inflation, which strips out volatile food and energy prices, also cooled last month to an annual rate of 3.2 percent.

At the same time, economic growth has shown signs of moderating, the job market appears to be softening, and the unemployment rate has remained close to record lows. 

These facts have fueled hopes the Fed is on track to bring down inflation while avoiding a damaging recession, a rare feat known as a “soft landing.”

Speaking at a conference in Raleigh, North Carolina, on Wednesday, Richmond Fed President Tom Barkin said a soft landing “is increasingly conceivable but in no way inevitable.”

But Barkin, who is a voting member of the Fed’s rate-setting committee this year, added that there was “no autopilot,” and that policymakers would continue to be guided by the incoming data.

Futures traders have assigned a probability of more than 90 percent that policymakers will vote to hold the Fed’s key lending rate steady again when they meet later this month, according to CME Group data.