Nov 21, 2023 - Economy

Federal Reserve to proceed "carefully" with future interest rate decisions

Federal Reserve chair Jerome Powell at a press conference earlier this month. Photo: Aaron Schwartz/Xinhua via Getty Images

Most Federal Reserve officials continue to see upside risks to the U.S.'s battle against inflation but suggested a more cautious stance on raising borrowing costs further, according to newly released minutes from the central bank's most recent policy meeting.

Why it matters: The minutes from the Oct. 31-Nov. 1 meeting, where officials decided to hold interest rates steady, said Fed officials agreed to "proceed carefully" with future interest rate decisions as they look to wind down their rate-hiking campaign.

Driving the news: "Most" members of the policy-setting Federal Open Market Committee "continued to see upside risks to inflation," per the minutes.

  • Fed officials said that a slew of economic data released in the coming weeks "would help clarify" whether price pressures are consistently easing.
  • Notably, all officials concluded that they were "in a position to proceed carefully" in adjusting the Fed's rate stance.

Of note: The meeting was held before the release of the October Consumer Price Index, which showed prices rising at a meaningfully slower pace.

  • That came alongside other data that suggested economic activity, including consumer spending, was cooling — though still remained solid.

Between the lines: Some of the risks that could result in stronger-than-expected inflation included the possibility that demand for goods and services could continue to outstrip supply of them, which could "slow the progress on inflation."

  • Members also pointed out geopolitical tensions and the impact on oil prices and the tight housing market, which could keep upward pressure on shelter costs.

What to watch: At the last policy meeting, "many" Fed officials fretted about the risks of weaker-than-expected economic growth down the line.

  • "Many participants commented that even though economic activity had been resilient and the labor market had continued to be strong, downside risks to economic activity remained," according to the minutes.
  • Among those risks: "larger-than-expected effects" from higher interest rates on economic demand, as well as "continued weakness" in commercial real estate.
  • Some Fed officials pointed out that low- and moderate-income households' budgets "were increasingly coming under pressure amid high prices for food and other essentials as well as tight credit conditions."
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