Federal Reserve officials do not expect US interest rate cuts this year

WASHINGTON: US central bankers do not expect it will be “appropriate” to start cutting interest rates this year with inflation remaining high, according to minutes of the latest Federal Reserve policy meeting released on Wednesday (Jan 4).

The Fed has waged an all-out campaign to cool the world’s biggest economy as inflation surged to a 40-year high last year, raising the benchmark lending rate seven times to ease demand.

This brought the rate to a range between 4.25 and 4.50 per cent after the Fed’s December meeting, the highest level since 2007.

But Fed policymakers believe “a restrictive policy stance would need to be maintained” until data shows inflation is on a sustained downward path, according to minutes from the gathering last month.

The aim is to return inflation to two per cent.

“No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023,” the meeting minutes added.

While the Fed had slowed its pace of rate increases in December after several steep rate hikes, the latest report shows officials were also concerned about any “misperception” of their moves.

Officials warned that an “unwarranted” easing of financial conditions, especially if driven by public misperceptions, would complicate efforts to restore price stability.

This is because monetary policy works importantly through financial markets, the report said.

A number of meeting participants also emphasized the need to “clearly communicate” that a slowing in the pace of rate hikes was not a sign of weakening in resolve when it came to the inflation fight.


For now, inflation remains “persistent and unacceptably high”, and a “sustained period of below-trend” GDP growth is needed, the report said.

In the past months, spending has likely been helped by a strong labour market and households tapping their excess savings from the pandemic, and this could continue.

But some officials also noted that budgets are being stretched in lower-income households, with many consumers shifting to less expensive alternatives.

This points to considerable uncertainty around the consumer spending outlook overall, according to the Fed.