The November meeting of the Federal Reserve (Fed) was marked by doubts about the institution’s reaction to the results of the presidential elections, the results of which were known only the day before. This was not the case: far from entering into controversy, Jerome Powell limited himself to emphasizing that he would not resign if Donald Trump asked him to do so, and to assuring that the American president could not fire him. , 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 showing increasing signs of strength, with inflation slowing less quickly than expected and strong strength of employment. In this context, the Fed decided that the best thing was to lower rates a little more calmly and, above all, to maintain a flexible approach, so that no one is surprised if during certain meetings the rates are not lowered, or ‘they are reduced further. than expected. The document leaves a substantive reading that reflects the Fed’s satisfaction that its goals are on track.
The meeting minutes make no reference to the outcome of the elections, nor to the impact they could have on the Fed’s monetary policy. The document reflects an analysis of the macroeconomic situation in the United States, and mostly leaves it out. feeling of reassurance from 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 months to come.
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 that certain factors will prevent inflation from accelerating significantly, even if economic activity remains stronger than expected. “Some participants emphasized that, although observed increases in real GDP reflect favorable supply-side developments, strong economic activity is unlikely to be a source of inflationary pressures,” the lawsuit states. verbal. This would be an idyllic scenario for the central bank, and it now appears to be one it hopes to see continue.
Furthermore, another of the most feared elements likely to trigger inflation is the strength demonstrated by the labor market, but this is not an urgent concern for the members of the Commission: “With the supply and the labor demand in balance at present, and with productivity improvements taking place, rising wages are unlikely to be a source of inflationary pressures in the near future,” the document says . And besides, they emphasize how their current employment objective has been achieved: “Meeting participants generally felt that labor market conditions are now consistent with the Committee’s long-term goal of full employment,” indicate.
A flexible, data-driven approach
Everything is looking good for the Fed, according to the minutes, and there are no dark clouds on the horizon, but the Committee, exercising the usual caution of American central bankers, wants to continue to emphasize the flexibility of its approach and warn the markets that there will be no fixed roadmap when it comes to interest rates, to avoid surprises in the future.
According to him, the reduction in rates should be gradual and always based on available macroeconomic data. If they considered in a meeting that employment was deteriorating rapidly, they would accelerate the rate cuts, but if, on the contrary, they warned that a stronger inflationary rebound than expected was occurring, they could paralyze the process of lower interest rates.
“During discussions on positioning monetary policy in response to potential changes in the balance of risks, some participants warned that the committee could suspend monetary policy moderation if inflationary risks remain elevated; others pointed out that this process could accelerate if the labor market cools or if economic activity weakens,” the minutes confirm.
