Minutes released from the Federal Reserve's first meeting this year showed the central bank is in no hurry to cut interest rates further, while officials also discussed possibly telling markets rates could be raised if inflation does not cool.
The Fed in January voted to keep interest rates unchanged between 3.50 and 3.75 per cent after reducing them by a total of 75 basis points in its previous three meetings. The UAE Central Bank, which follows Fed decisions because of the dollar peg, also kept rates unchanged.
The US central bank releases minutes from its policy-setting decisions about three weeks after each meeting. While the minutes are backward-looking, investors pore over their contents for clues on future decisions.
Wednesday's release showed that “several participants” during the Fed's January 27-28 meeting suggested they “would have supported a two-sided description” of future rate decisions “if inflation remains at above-target levels”.
Inflation has remained above the Fed's 2 per cent target for nearly five years after a post-Covid surge, which peaked at more than 9 per cent in 2022. Most recent economic data showed the consumer price index (CPI) inflation dropped to 2.4 per cent in January from 2.7 per cent in December.
Fed officials were expected to receive more data this week, with their preferred inflation metric due on Friday.
Treasury yields rose after the minutes were released, with those on the 10-year up 2.5 basis points to 4.079 per cent and the 30-year Treasury bond also up more than two basis points at 4.706 per cent as of 2.56pm ET. The two-year Treasury, which is most closely tied to the federal funds rate, was up two basis points at 3.457 per cent.
The minutes also reveal a Federal Reserve that is not in a hurry to cut interest rates further. Despite a 10-2 vote, the minutes showed officials want to see how the effect of their rate cuts will filter through the economy.
“Some participants commented that it would likely be appropriate to hold the policy rate steady for some time as the committee carefully assesses incoming data, and a number of these participants judged that additional policy easing may not be warranted until there was clear indication that the progress of disinflation was firmly back on track,” the minutes read.
That reflects the sentiment Fed chairman Jerome Powell expressed in his post-meeting news conference in January, telling reporters the US central bank is “well positioned here to watch how the economy performs”.
The minutes also showed that divisions remain in the Fed's rate-setting committee.
While "some participants" expressed they believe the rate should be on hold for some time, "several participants" said more cuts would be necessary if inflation continues to decline.
This debate centres around the strength of the labour market. The Fed pressed along with rate cuts in its final three meetings last year on concerns over the health of the labour market, although recent data show signs that it is stabilising.
And a report released last week showed the US economy added more jobs than expected in January while the unemployment rate dipped to 4.3 per cent.
Fed vice chairwoman Michelle Bowman, who voted in line with Mr Powell in January, described the jobs report as strange and said most other economic indicators do not point to signs of a strong labour market, Reuters reported.
