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The release of the details of the Fed’s meeting minutes..the transformation will happen and less interest comes by Investing.com

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Investing.com – Federal Reserve officials agreed earlier this month that this should happen soon as they assess the impact of monetary policy (raising interest rates) on the economy, according to a report released on Wednesday.

The meeting summary, which echoed statements made by various officials over the past few weeks, indicated a slight increase in interest rates in the upcoming meetings. Markets widely expect the Federal Open Market Committee to back down on a December hike, after four consecutive 0.75 percentage point hikes.

Despite the indication that smaller moves are ahead, officials said they still see little sign of inflation abating. However, some committee members expressed concern about risks to the financial system if the Fed continued at the same aggressive pace.

The minutes state that “a large majority of participants believed that slowing the rate of increase would be appropriate in the near future.” “Legacies and uncertain volumes related to the effects of monetary policy actions on economic activity and inflation were among the reasons cited for the importance of this assessment.”

The minutes indicated that small increases would give policymakers an opportunity to assess the impact of successive price increases.

The summary noted that some members noted that “the slower pace of the increase may reduce the risk of instability in the financial system.” Others said they would like to wait to slow down. Officials said they see the balance of risks to the economy now tipping to the downside.

Markets have been looking not only for clues about what the next rate hike might look like, but also how far policymakers think they will have to go next year to make satisfactory progress against inflation.

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It was important for the public to focus more on how far the Fed would go with rates, officials said at the meeting, “and the evolution of the policy stance thereafter became more important considerations for achieving the committee’s goals than the pace of further increases in the target range.”

previous signals

In recent days, officials have spoken in unison about the need to continue to fight inflation, while also indicating that they may hold back the level of interest rate hikes. This means there is a strong possibility of a 0.5 percentage point increase in December, but the trajectory after that remains uncertain.

Markets expect a small increase in interest rates in 2023, bringing the funds rate to around 5%, and then perhaps some cuts before the end of the year.

The post-meeting statement of the interest rate-setting Federal Open Market Committee added a sentence that was interpreted by markets as a signal that the Fed will make smaller increases in the future. This sentence reads: “In determining the rate of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Investors saw it as a sign of a less intense rally after four consecutive 0.75 percentage point hikes lifted the Fed’s benchmark lending rate to a range of 3.75 to 4%, the highest in 14 years.

Several Fed officials have said in recent days that they expect a possible half-point move in December.

“They’re getting to a point where they don’t have to move as fast. That’s helpful because they don’t know exactly how much tightening they’re going to have to do,” said Bill English, a former Fed official. at Yale School of Management. “They emphasize that the policy works with delays, so it helps to be able to move forward a little more slowly.”

Inflation is going down

Inflation data has shown some encouraging signs recently and remains well above the central bank’s official target of 2%.

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The October consumer price index rose 7.7% from a year ago, the lowest reading since January. However, a gauge the Fed closely tracks, the PCE excluding food and energy index, showed an annualized increase of 5.1% in September, up 0.2 percentage points from August and the highest reading since March.

These reports were released after the Federal Reserve Board meeting in November. Several officials said they viewed the reports positively but needed to see more before they would consider tightening the policy.

The Fed has recently been the target of criticism that it may be tightening too much. The concern is that policymakers focus too much on lagged data and miss signs that inflation is declining and growth is slowing.

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