Updated Feb 21, 2024 - Business

Fed fretted about cutting rates "too quickly"

powell speaks at a podium at a news conference

Photo: Julia Nikhinson/AFP via Getty Images

Federal Reserve officials worried about cutting interest rates too soon — fearing progress on inflation could stall out, according to minutes of the central bank's late January policy meeting released on Wednesday.

Why it matters: Most Fed policymakers last month agreed more proof of receding price pressures was necessary before the central bank lowered borrowing costs.

  • Fed officials in recent days have shared a similar message, particularly since the inflation and jobs data released since the Jan. 30-31 policy meeting came in hotter-than-expected.

What they're saying: Most Fed officials "noted the risks of moving too quickly to ease the stance of policy," according to the minutes.

  • Those officials "emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent."
  • Some officials highlighted the risk that inflation progress "could stall," especially if the supply-side relief measures that many officials said have helped squash inflation "slowed more than expected."

Of note: The minutes also showed some officials were concerned about the risk that financial conditions — stocks, bonds and more — would become "less restrictive than appropriate."

  • That could "add undue momentum" to the economy and slow progress on inflation, the minutes said.

The other side: Only a small number of other Fed officials warned of economic risks if the central bank waited too long before reducing decades-high interest rates.

  • "A "couple" of Fed officials "pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long," the minutes say.

Where it stands: The big question is how this month's run of hot economic data impacts the Fed's timeline for rate cuts.

  • Financial markets no longer expect an interest rate cut next month. The odds of a May cut have also slimmed in recent days.

The intrigue: At the time of the Fed meeting last month, officials acknowledged notable progress on inflation that, for now, has come to a halt.

  • They said previous rate hikes and "ongoing improvements" on the supply side of the economy — healing supply chains and more workers entering the labor force, for instance — were "working together to move supply and demand into better balance," the minutes say.
  • Then, officials saw "upside risks as having diminished," but said inflation remained too high.
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