The minutes from the Fed’s January meeting showed that members were generally optimistic that their policy moves had succeeded in lowering inflation. Members also felt they had reached their peak Fed Funds Rate for this cycle.
The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. The Fed’s eleven hikes between March 2022 and July 2023 were made to slow the economy and curb the runaway inflation seen over the last few years.
What’s the bottom line? Fed members want to see more data before they ease monetary policy, and they don’t expect to begin cutting rates until they have “gained greater confidence that inflation is moving sustainably toward 2 percent.” This cautious approach from January’s meeting has been echoed more recently by several Fed members, including Philadelphia Fed President Patrick Harker and Fed Governor Christopher Waller.
Note that the Fed’s favored inflation measure, Core Personal Consumption Expenditures (PCE), declined to 2.9% annually as of the latest report for December. January’s PCE report will be released this Thursday, and it will be especially important to monitor the latest numbers after both the Consumer and Producer Price Indexes reported hotter than expected inflation for last month.