Investors are getting minutes from the Federal Reserve’s latest meeting a day early this week because of the Thanksgiving holiday.
The minutes will be released Tuesday and are expected to provide insight on what the Federal Open Market Committee prioritized as it weighed whether to hold the benchmark rate steady during its Oct. 31-Nov. 1 meeting.
Fed policy makers chose to keep the target for the federal-funds rate at 5.25-5.50%, after last increasing it in July.
At the postmeeting press conference, Chair Jerome Powell said officials weren’t yet satisfied with the progress made on inflation and that monetary policy might not be restrictive enough. He also noted policy makers were watching rising bond yields, which contributed to tighter financial conditions earlier this fall.
“Given how far we have come along with the uncertainties and risks we face, the committee is proceeding carefully,” Powell noted.
The latest round of economic data released this month has left investors optimistic the central bank’s policies are working.
In October, the labor market underwent a marked softening. The economy had a significantly slower pace of job creation, as well as cooling wage growth and an uptick in the unemployment rate to 3.9%.
The latest consumer price index also proved weaker, with falling gasoline prices slowing the pace of price growth in October. Inflation climbed 3.2% year over year in October—a slower pace than the 3.7% rate recorded in September and August and coming in below expectations, according to data released by the Bureau of Labor Statistics on Nov. 14.
As inflation falls, the so-called real rate will grow more restrictive even if officials decline to hike again, dampening economic momentum. Markets cheered and the
S&P 500
currently sits right below 20% for the year.
“The market view seemed to declare inflation conquered, serving up one of the best days of the year,” writes Marc Dizard, chief investment strategist of PNC Asset Management Group.
He notes the stock rally last week, and arguably the overall upswing since Nov. 1 has been due, in large part, to the market declaring victory.
“Our response to that would still be a large…maybe,” Dizard says.
Central bank policy makers have also maintained a cautious outlook on economic data, highlighting how much uncertainty remains. They noted in recent remarks it is too early to declare mission accomplished and reiterated there could be further tightening if merited by economic data.
But officials also have acknowledged rising headwinds due to restrictive policy they see both in the U.S. and globally. Fed Gov. Lisa Cook, for one, noted last week she was carefully watching lower-income households for potential early signs of financial strain, as well as small businesses and the housing sector.
And despite the tough talk, most investors believe the central bank is poised to hold interest rates steady for the foreseeable future. Investors on Monday were pricing in a 0% chance of a hike at the December meeting and only 2.1% chance in January, according to the CME FedWatch tool.
“Recent signs of softer inflation and consumer demand suggest the Federal Reserve is well positioned to remain on hold at the December policy meeting,” writes EY Chief Economist Gregory Daco.
Daco believes the Fed’s tightening cycle is likely complete and “while Fed policy makers won’t pre-announce it, ‘policy recalibration’ will be on their New Year’s resolution list.”
The FOMC minutes will be released at 2 p.m.
Write to Megan Leonhardt at megan.leonhardt@barrons.com
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