US Federal Reserve officials concluded earlier this month that the central bank should soon moderate the pace of interest-rate increases to mitigate risks of overtightening, signalling they were leaning towards downshifting to a 50 basis-point increase in December.
“A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” according to minutes from their November 1-2 gathering released on Wednesday in Washington.
While Fed chairman Jerome Powell said during his post-meeting press conference that rates will probably ultimately go higher than officials’ September forecasts indicated, Wednesday’s report gave a more nuanced take: “various” officials — a descriptor not commonly used in the minutes — had concluded that rates would ultimately peak at a higher level than previously expected.
In another revelation, Fed staff told officials during the gathering that their assessment of the risks of a recession had grown to almost 50-50. That was the first such warning since the central bank began raising rates in March.
US stocks and treasuries rallied while the dollar fell following the report, as investors took a dovish message from the minutes.
At the meeting, officials raised the benchmark rate 75 basis points for a fourth straight time to 3.75 per cent to 4 per cent, extending the most aggressive tightening campaign since the 1980s to combat inflation at a 40-year high.
Ellen Meade, a former Fed Board economist who researched communication, said the word “various” is a rarely used term deployed when ambiguity is needed.
“If the minutes had said ‘several’ people thought the terminal rate would be higher — that’s not a strong message,” she said. “So they needed to fuzz it up.”