Americans are gearing up for food, family and football on Thursday, but investors were still waiting until Wednesday afternoon to start giving thanks.
That’s because the Federal Reserve released minutes from its last meeting at 2 p.m. ET on Wednesday, which provided more clues about the central bank’s thinking on inflation and interest rate hikes. .
At its November 2 meeting, the Fed increased rates by three-quarters of a percentage point — its fourth consecutive increase of such magnitude. But Fed Chairman Jerome Powell suggested at a press conference that the Fed may soon begin to slow the pace of the hikes.
The minutes of that meeting showed that several other Fed policymakers agreed with Powell’s assessment.
“A number of participants observed that as monetary policy approached a stance tight enough to meet the Committee’s objectives, it would become appropriate to slow the pace of increase in the target range for the federal funds rate. “, the Fed said in the minutes.
The Fed added that “a substantial majority of participants felt that a slower pace of increase would likely soon be appropriate.”
Stocks, which were relatively flat and curvy before the minutes were released, jumped after they were released. The Dow ended the day up more than 95 points, or 0.3%. The S&P 500 jumped 0.6% and the Nasdaq 1%.
Other members of the Fed, including Vice President Lael Brainard, had also hinted in recent speeches of a slowing pace of increases. Yet there was confusing signals from other Fed officialswho continued to stress that inflation is not going away and must be brought under control.
To that end, the Fed said in the minutes that inflation remained “stubbornly high” and “more persistent than expected.”
With that in mind, traders are now pricing in a greater than 75% chance that the Fed will only hike rates by half a point at its Dec. 14 meeting, according to CME futures. That’s up from a 52% chance of a half-point hike a month ago, but lower than the 85% chance of a half-point hike that was assessed. last week.
A recent batch of inflation reports seem to suggest that the pace of runaway price increases is finally starting to slow to more manageable levels. The labor market also remains relatively healthy, although recent unemployment insurance claim figures up for a week.
But as long as the labor market remains firm and inflationary pressures continue to ease, the Fed is likely to scale back its rate hikes.
Some experts are increasingly concerned that if the Fed goes too far with rates, the increases could eventually slow the economy too much and potentially lead to much higher unemployment, job losses and even a recession.
Still, Wall Street is increasingly confident that the Fed could pull off a so-called soft landing. The Dow climbed 14% in October, its best month since January 1976. The Dow rose another 4.5% in November and is down only 6% this year.