Americans prepare for food, family and football on Thursday, but it lasted until Wednesday afternoon before investors started giving thanks.
That’s because the Federal Reserve released minutes of its last meeting on Wednesday at 2:00 PM ET, giving more clues about the central bank’s thinking on inflation and interest rate hikes.
At its meeting on Nov. 2, the Fed raised interest rates by three quarters of a percentage point — the fourth consecutive hike of such magnitude. But Fed Chairman Jerome Powell suggested at a press conference that the Fed may soon begin to slow its pace of growth.
Minutes of that meeting showed that several other Fed policymakers agreed with Powell’s assessment.
“A number of participants observed that as monetary policy moves closer to a sufficiently restrictive stance to meet the Committee’s objectives, it would be appropriate to slow the rate of increase in the target range for the federal funds rate,” the Fed said. minute.
The Fed added that “a large majority of participants decided that a slowdown in growth would soon be appropriate.”
Stocks that were relatively flat and choppy before the minutes came out after the release. The Dow ended the day up more than 95 points, or 0.3%. The S&P 500 gained 0.6%, and the Nasdaq gained 1%.
Other Fed members, notably Vice Chairman Lael Brainard, have hinted at a slower pace of hikes in recent speeches. However, there are disconcerting signals from other Fed officials who continue to stress that inflation is not going away and needs to be brought under control.
To that end, the Fed said in minutes that inflation remained “stubbornly high” and “more persistent than expected.”
With that in mind, traders are now pricing in more than 75% odds that the Fed will raise rates by just half a point at its Dec. 14 meeting, according to CME futures contracts. That’s higher than the 52% probability of a half-point increase a month ago, but lower than the 85% probability of a half-point increase priced just last week.
Recent inflation reports suggest that the pace of runaway price increases is finally starting to slow to more manageable levels. While the latest jobless claims numbers rose from a week ago, the labor market also remains relatively healthy.
But as the labor market remains firm and inflationary pressures continue to ease, the Fed is likely to scale back rate hikes.
Some experts worry that if the Fed goes too far with rates, the hikes will ultimately slow the economy too much, potentially leading to higher unemployment, job losses and even a recession.
The Fed rate hike has clearly affected the housing market by increasing mortgage rates.
Still, Wall Street is more confident that the Fed can pull off a so-called soft easing. 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 risen significantly since October, but both of those broader market indexes remain more sharply lower than the Dow for the year.