Americans prepare for food, family and football on Thursday, but investors still hesitated until Wednesday afternoon before they started giving thanks.
That’s because the Federal Reserve released the minutes of its latest meeting at 2pm EST on Wednesday, which provided more clues about the central bank’s thinking about inflation and interest rate hikes.
At its meeting on November 2, the Fed raised interest rates by three-quarters of a percentage point – the fourth consecutive rise of such a large scale. But Fed Chairman Jerome Powell suggested at a press conference that the Fed may soon start slowing the pace of increases.
Minutes of the meeting showed that many other federal policymakers agreed with Powell’s assessment.
“A number of respondents noted that as monetary policy approaches a position that was sufficiently restrictive to achieve the committee’s objectives, it would be 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 “the vast majority of respondents thought that a slower pace of increase would likely be appropriate soon.”
The arrows, which had been relatively flat and meandering before the minutes were issued, popped after they were fired. The Dow Jones ended the day higher by more than 95 points, or 0.3%. The S&P 500 jumped 0.6% and the Nasdaq rose 1%.
Other Fed members, most notably Vice Chair Lyle Brainard, have also hinted at a number of recent speeches of slower pace of increases. However, there were confusing signals from other Fed officials, who continued to stress that inflation will not go away and must be brought under control.
To that end, the Fed said in the minutes that inflation remains “stubbornly high” and “more persistent than expected.”
With that in mind, traders are now pricing in the more than 75% chance that the Federal Reserve will raise interest rates by just half a point at its December 14 meeting, according to CME Futures. This is higher than the 52% odds of a half point increase a month ago, but lower than the 85% probability of a half point increase priced in just last week.
The latest batch of inflation reports seems to indicate that the pace of runaway price increases is finally starting to slow down to manageable levels. The job market remains relatively healthy as well, though the latest jobless claims numbers are up from last week.
But as long as the labor market remains strong and inflation pressures continue to recede, the Fed will likely scale back its rate hikes.
Some experts are increasingly concerned that if the Fed goes too far with interest rates, the increases could eventually slow the economy too much and potentially lead to much higher unemployment, job losses and even a recession.
The interest rate hike by the Federal Reserve had a clear impact on the housing market, as higher mortgage rates helped to have a negative impact on home sales.
With that, Wall Street is increasingly confident that the Fed may be able to undo the so-called soft landing. The Dow rose 14% in October, its best month since January 1976. The Dow rose another 4.5% in November and is now down just 6% this year.
The S&P 500 and Nasdaq have also rebounded significantly since October, but both broader market indices have remained sharply lower for the year than the Dow.