The November meeting of the Federal Reserve (Fed) was a meeting marked by doubts as to whether the institution would react in any way to the results of the presidential elections, the results of which had been known just a day before. It was not like that: far from entering into controversy, Jerome Powell limited himself to highlighting that he would not resign if Donald Trump asked him to, and to ensure that the American president could not fire him from office, even if he wanted to. Everything else revolved around the decision to cut rates by 25 basis points, at a time when the economy is increasingly showing signs of greater strength, with inflation slowing less quickly than expected, and employment showing great vigor. In this context, the Fed decided that the best thing was to cut rates a little more calmly and, above all, maintain a flexible approach, so that no one would be surprised if at some meeting rates were not lowered, or they were cut more than expected. that was expected. The document leaves a background reading that reflects the Fed’s satisfaction in considering that its objectives are on the right track.
The minutes of the meeting do not have any reference to the outcome of the elections, nor to the impact that these may have on the Fed’s monetary policy. The document reflects an analysis of the macroeconomic situation in the United States, and above all leaves the feeling of reassurance on the part of the members of the Federal Open Market Committee in this sense: everything is close to its objective, both inflation and employment, and there does not seem to be any danger of a strong inflationary rebound in the coming months.
This security is maintained by the members of the Committee, even despite the signs that have worried the markets in recent months. First, they believe there are some factors that will prevent inflation from picking up much even if economic activity remains stronger than expected. “Some participants have highlighted that, while the increases in real GDP that have occurred reflect favorable developments on the supply side, the strength of economic activity is unlikely to be a source of inflationary pressures,” the minutes reflect. This would be an idyllic scenario for the central bank, and it now appears to be the one they hope will continue.
What’s more, another of the elements that was most feared could trigger inflation is the strength that the labor market is showing, but this is now not an urgent concern for the members of the Committee: “With labor supply and demand in balance At this time, and thanks to the improvement in productivity that is taking place, the increase in wages is unlikely to be a source of inflationary pressures in the near future,” the document states. And by the way, they emphasize how their employment objective at this moment has been met: “Meeting participants have generally assessed that labor market conditions are now consistent with the Committee’s long-term goal of full employment,” indicate.
A flexible and data-dependent approach
Everything looks good for the Fed, according to the minutes, and there are no dark clouds on the horizon, but the Committee, displaying the usual prudence of American central bankers, wants to continue insisting that its approach is flexible, and warn the markets that there will be no set roadmap for interest rates, to avoid surprises in the future.
In his opinion, the rate cut should be gradual, and always depending on the macroeconomic data available. If at a meeting they considered that employment was deteriorating rapidly, they would accelerate rate cuts, but if, on the contrary, they warned that a stronger than expected inflationary rebound was occurring, they could paralyze the process of interest rate cuts. .
“When discussing the positioning of monetary policy in response to potential changes in the balance of risks, some participants have warned that the committee could pause monetary policy moderation if inflationary risks remain elevated; others stressed that this process could accelerate if the labor market cools or if economic activity weakens,” the minutes confirm.
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