Fed Minutes Cite Lower Inflation Risks, Concern About 'Overly Restrictive' Policy

• Federal Reserve officials in December launched an expansive debate about a coming turn in U.S. monetary policy, with fresh concerns voiced about how long the economy could hold up under current high interest rates and at least initial discussion about when to halt the rundown of its balance sheet, according to minutes of the Dec. 12-13 meeting.
• Fed Chair Jerome Powell had laid out the broad contours of the meeting, noting that the central bank was likely done raising interest rates and expected to begin reducing borrowing costs by the end of 2024.
• While the minutes did not provide direct clues about when rate cuts might commence, they reflected a growing sense that inflation is under control and growing concern about the risks that "overly restrictive" monetary policy may pose to the economy.
• The document caps a year that began with the Fed still uncertain about how much harm it might have to inflict on the economy to control inflation and Powell warning of "pain" to come, but ended with inflation falling faster than anticipated and policymakers becoming increasingly hopeful that they could tame inflation while skirting the recession even staff members thought was sure to come.
• Notably, for the first time since June 2022, policymakers did not use the phrase "unacceptably high" to describe inflation, according to the minutes, while laying out reasons why they felt inflation would continue to fall.
• There were still risks, with several participants saying they felt the Fed had gotten all the help it could expect from improved supply chains to lower inflation, with tight monetary policy still needed to dampen demand and new geopolitical risks possibly causing inflation progress to stall.

(Source: Reuters)