Fed Officials Discuss Possibility of Slowing or Halting Rate Cuts if Inflation Decline Stops

The Federal Open Market Committee (FOMC) members discussed the possibility of slowing or halting interest rate cuts if progress on reducing inflation stalls during their meeting on November 6-7. However, a group of members agreed that it was important to avoid providing concrete guidance on how U.S. monetary policy might evolve in the coming weeks.

According to the minutes from the FOMC meeting released today, officials believed that if the economy performs in line with expectations that inflation will continue to decline steadily, it would likely be appropriate to "gradually move towards a more neutral interest rate adjustment."

The meeting minutes indicated that all 19 officials who participated in the discussions approved the decision to lower the Fed's benchmark short-term interest rate by a quarter point, bringing it to a range of 4.5% to 4.75%. Some policymakers expressed that the risk of a more pronounced slowdown in the labor market or economy has diminished since the September meeting. Many members also highlighted greater uncertainty about where interest rates would settle for an economy that requires neither stimulus nor monetary tightening.

According to the minutes, these considerations "have warranted a gradual reduction in policy restrictions." Participants noted that monetary policy decisions are not on a predetermined path and depend on the evolution of the economy and its impact on the economic outlook. Participants emphasized the importance of clearly communicating any adjustments to the FOMC's policy stance.

The Fed's next meeting is scheduled for December 17-18. Officials stated that a decision on interest rate cuts could be closely considered at this meeting, but they left the door open for one final rate cut this year.

Separately, Fed staff revised their assessment of the economy's capacity to produce goods and services, often referred to by economists as "potential output," due to recent gains in productivity. Higher potential growth resulting from improvements in productivity could allow for increased production without putting upward pressure on prices, provided it is sustained.