Investing.com – Federal Reserve policymakers were in support of keeping rates at restrictive levels for "some time" until inflation is clearly on a downward path, though stopped short of suggesting rate cuts were on the horizon anytime soon, according to the minutes of the Federal Reserve’s Oct. 31-Nov. 1 meeting released Tuesday.
Fed favors restrictive stance for some time amid signs policy putting squeeze on inflation
"All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably toward the Committee's objective," the minutes showed.
At the conclusion of its previous meeting on Nov. 1, the Federal Open Market Committee, or FOMC, kept its benchmark rate in a range of 5.25% to 5.5%.
It was the third time in a row the central bank decided to stand pat on rates as signs of slowing inflation paved the way for the central bank to continue its careful approach to monetary policy.
The consumer price index for October fell to an annualized rate of 3.2% from 3.7% in the prior month that some economists estimate will support further slowing in the core personal consumption expenditures price index, or core PCE, closely watched by the Fed as a more accurate measure of inflation.
“Incorporating inputs from CPI, we forecast core PCE inflation increased 0.17% in October vs. 0.30% in September,” Morgan Stanley said in a recent note, ahead of the next PCE data slated for Nov. 30. Core services ex housing translation points to 0.15%M in October vs. 0.42%M prior,” it added.
Slowdown in economy, labor market likely needed to bolster inflation fight
A slowing in the economy, or a period of "below-potential growth in real GDP and some further softening in labor market conditions," the minutes showed, would likely be needed to "reduce inflation pressures sufficiently to return inflation to 2 percent over time."
The slowing pace of inflation comes just as financial conditions eased in recent weeks, which could muddy the progress made to bring inflation down.
Fed acknowledges tighter financial conditions... but a lot has changed since November decision
The Fed acknowledged that in recent months financial conditions had tightening "significantly" because of a run-up in yields on longer-term Treasuries.
But Treasury yields have pulled back sharply since the meeting, undoing the tightening in financial conditions.
In November, the financial condition index, Deutsche Bank said, citing its daily version of the Fed staff's financial conditions index, has “unwound a bit over half of the tightening seen in October, though conditions remain substantially tighter than they were in late July.”
Despite the easing in financial conditions, the Fed “can afford to be less concerned with this easing given recent data showing progress on the labor market and inflation,” it added.
As bets on the end of the Fed rate-hike cycle gather steam, investors have been shifting focus to the prospect of rate cuts in the first half of next year. Fed members, however, aren't too keen to endorse the prospect of sooner rather than later rate cuts.