Officials at the Federal Reserve are generally uncertain on when they will begin cutting US interest rates, although most warned against starting too soon, minutes from their January 30-31 meeting showed on Wednesday.
The Fed kept its target rate unchanged between 5.25 and 5.50 per cent when it last met and suggested rates had reached their peak, leading markets and borrowers to question how long they will remain elevated.
“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained,” the minutes from the Federal Open Market Committee meeting read.
Most participants noted the risks of moving too quickly to ease the stance of policy and the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 per cent.
But “a couple of participants” noted the risks of keeping rates elevated for too long, underscoring the dilemma the Fed faces.
The minutes largely reflect what Fed chairman Jerome Powell and other officials have been cautioning, suggesting that the central bank is in “risk-management mode”.
After the January meeting, Mr Powell also ruled out cutting US interest rates in March, saying the Fed needs to see more data.
“Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably towards 2 per cent,” the minutes read.
Economic data released since the meeting has come in hotter than expected, highlighting the uneven road back to the Fed's 2 per cent inflation target.
January's Consumer Price Index showed inflation had slowed to 3.1 per cent annually, while another report showed the US economy added 353,000 jobs the same month.
The FOMC holds its next meeting on March 19-20, when it is expected to leave rates unchanged. It will also release its latest economic projections.
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Fed balance sheet
Fed officials also discussed continuing to reduce the size of the Fed's balance sheet, with some suggesting a start to discussions on eventually slowing the pace of run-off “in light of continuing reductions" in use of their reverse repo facility.
Its process of reducing its assets is known as quantitative tightening, which it began in June 2022.
“Some participants remarked that, given the uncertainty surrounding estimates of the ample level of reserves, slowing the pace of run-off could help smooth the transition to that level of reserves or could allow the committee to continue balance sheet run-off for longer,” the minutes read.
Fed officials also said this could continue even after it begins cutting US interest rates.
