Fed Officials Point to Slow Interest Rate Cuts As Inflation Eases and Labor Market Remains Strong

Officials now expect a slower pace of interest rate cuts, with growing confidence that inflation is softening and the labor market continues to be strong, according to minutes of the Fed’s November meeting released Tuesday. The Fed continues to see inflation still above the bank’s 2% target; however the bank remains optimistic that progress will continue, which could be interpreted as a possible reason for gradual rate cuts.

The minutes detail that FOMC participants were generally satisfied with the progress of inflation because the data had put them on course to beat the Fed’s target; however, they warned against moving forward violently. Officials noted, “If the trend continues, and the economy also continues to be on the edge of high employment,” it would be warranted to begin shifting over time toward a more moderate policy stance. So it could mean further rate cuts, although these rates are unknown in terms of time and scale.

At the November meeting, the FOMC voted unanimously to lower the benchmark lending rate by a quarter point to a target range of 4.5%-4.75%. The market had expected a rate cut in December, but those expectations have been dashed as fears of inflationary pressures from new tariffs under President-elect Donald Trump’s economic plans have risen.

The minutes also revealed some uncertainty about the future path of interest rates. In particular, officials have had difficulty determining the “neutral” interest rate—the level at which monetary policy neither stimulates nor inhibits growth. This uncertainty has made Fed officials cautious in their approach, opting for gradual adjustments rather than immediate changes.

While inflation continues to be above the Fed’s target, the minutes saw several factors putting downward pressure on price growth. These include a slowdown in business prices, continued tightening in monetary policy, and a positive focus on long-term inflation expectations. Housing costs, one of the main drivers of inflation, also appear to be falling as rents increase, further supporting the inflationary outlook.

Despite recent concerns about the labor market, with October nonfarm payrolls rising by just 12,000, officials noted there is no sign of an immediate deterioration in employment conditions. Layoffs remain low, and the overall labor market remains strong, giving policymakers confidence as they navigate future rate cuts.