WASHINGTON (AP) — With inflation still elevated, Federal Reserve officials expressed caution at their last meeting about cutting interest rates too quickly, adding to uncertainty about their next moves.
Even if inflation continued declining to the Fed's 2% target, officials said, “it would likely be appropriate to move gradually” in lowering rates, according to minutes of the November 6-7 meeting.
The minutes don't provide much guidance about what the Fed will do at its next meeting Dec. 17-18. Wall Street investors see the odds of another quarter-point reduction in the Fed's key rate at that meeting as nearly even, according to CME Fedwatch. Most economists think officials will probably cut rates next month for the third time this year, but could then skip cutting at following meetings.
Kathy Bostjancic, chief economist at Nationwide, said she expects the Fed will cut its key rate by a quarter-point next month, to about 4.3%. But officials will “likely pause" early next year “to assess prospective policy changes under the second Trump administration as well as the current landscape of economic activity and inflation,” she added in a client note.
In September, the Fed signaled it would reduce its key rate as many as four times next year, but since then investors and economists have come to expect fewer cuts. The economy is growing at a solid pace, inflation is showing signs of getting stuck above the Fed's target, and President-elect Donald Trump's proposals, particularly higher tariffs, could also accelerate inflation.
Inflation fell to 2.1% in September, down from a peak of 7% in mid-2022, providing Fed officials with the confidence to implement a steep half-point reduction in its key rate that month.
But excluding the volatile food and energy categories, so-called “core” prices are more elevated, rising 2.7% from a year earlier in September. And they are expected to have risen again last month, when that data is reported Wednesday, to 2.8%.
Most officials at last month's meeting expressed confidence that inflation is steadily falling back to target, the minutes said. Yet they also said that it “remained somewhat elevated” and a couple of officials “noted the possibility that the process could take longer than previously expected.” Nineteen people participate in the Fed's interest rate policy discussions, though only 12 have a vote.
Many of the policymakers also noted that it was uncertain how far the Fed would have to cut its rate. There is broad disagreement among officials about what level of the Fed's rate would neither restrain nor stimulate growth. As a result, the minutes said, that “made it appropriate to reduce (interest rates) gradually.”
The Fed is trying to calibrate its policies so that it doesn't cut rates too quickly and allow inflation to surge again. At the same time, it doesn't want to reduce them too slowly, which could drag down hiring and growth.
If inflation stayed too high, Fed officials could “pause” their rate cuts, the minutes said, while if the economy slowed and unemployment rose, they could reduce rates more quickly.
The Federal Reserve cut its key interest rate Wednesday for a second time this year as it seeks to shore up economic growth and hiring even as inflation stays elevated. The move comes amid a fraught time for the central bank, with hiring sluggish and yet inflation stuck above the Fed’s 2% target. Compounding its challenges, the central bank is navigating without much of the economic data it typically relies on from the government. The Fed has signaled it may reduce its key rate again in December but the data drought raises the uncertainty around its next moves. Fed Chair Jerome Powell told reporters that there were “strongly differing views” at the central bank's policy meeting about to proceed going forward.
The Federal Reserve will almost certainly cut its key interest rate on Wednesday and could signal it expects another cut in December as the central bank seeks to bolster hiring. A cut Wednesday would be the second this year and could benefit consumers by bringing down borrowing costs for mortgages and auto loans. Since Fed chair Jerome Powell strongly signaled in late August that rate cuts were likely this year, the average 30-year mortgage rate has fallen to about 6.2% from 6.6%. Still, the Fed is navigating an unusual period for the U.S. economy and its future moves are harder to anticipate than is typically the case.
Stocks are rallying toward more records ahead of a week packed with potentially market-moving events. The S&P 500 rose 1% Monday. The Dow Jones Industrial Average added 224 points, and the Nasdaq composite jumped 1.7%. Stocks also climbed in Asia ahead of a meeting on Thursday between the heads of the United States and China. The hope is that the talks could clear rising tensions between the world’s two largest economies. This upcoming week will feature profit reports from some of Wall Street's most influential companies and a meeting by the Federal Reserve on interest rates. Gold fell back toward $4,000 per ounce.
U.S. and Chinese officials say a trade deal between the world’s two largest economies is drawing closer. The sides have reached an initial consensus for President Donald Trump and Chinese leader Xi Jinping to aim to finalize during their high-stakes meeting Thursday in South Korea. Any agreement would be a relief to international markets. Trump's treasury secretary says discussions with China yielded preliminary agreements to stop the precursor chemicals for fentanyl from coming into the United States. Scott Bessent also says Beijing would make “substantial” purchases of soybean and other agricultural products while putting off export controls on rare earth elements needed for advanced technologies.
Some seniors say the Social Security Administration's cost-of-living adjustment won’t help much in their ability to pay for their daily expenses. The agency announced Friday the annual cost-of-living adjustment will go up by 2.8% in 2026, translating to an average increase of more than $56 for retirees every month. Eighty-year-old Florence, South Carolina, resident Linda Deas says it does not match the current "affordability crisis.” The benefits increase will go into effect for Social Security recipients beginning in January. Friday’s announcement was meant to be made last week but was delayed because of the federal government shutdown. Recipients got a 2.5% COLA boost in 2025 and a 3.2% increase in 2024.
Wall Street is heading for records after an update said U.S. households are feeling a bit less pain from inflation than feared. The S&P 500 climbed 1% Friday and was on track to top its all-time high set earlier this month. The Dow Jones Industrial Average jumped 529 points, and the Nasdaq composite rose 1.3%. Both are also heading toward records. The inflation data could clear the way for the Federal Reserve to keep cutting interest rates in hopes of helping the slowing job market. A strong earnings reports from Ford Motor and continued gains for AI stars also drove stocks higher.
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President Donald Trump says “there seems to be no reason” to meet with Chinese leader Xi Jinping as part of an upcoming trip to South Korea after China restricted exports of rare earths needed for American industry. The Republican president suggested Friday he was looking at a “massive increase” of import taxes on Chinese products in response to Xi’s moves. Trump says one of the policies the U.S. is calculating is "a massive increase of Tariffs on Chinese products coming into the United States." A monthslong calm on Wall Street was shattered, with U.S. stocks falling on the news. The Chinese Embassy in Washington hasn't responded to an Associated Press request for comment.
