Fed Indicates Cautious Stance on Possible Rate Cuts

The prudence of the U.S. Federal Reserve (Fed) regarding potential interest rate cuts was evident in the recently published minutes from the meeting on January 31. Within the framework of the Federal Open Market Committee, members primarily emphasized the importance of a cautious rate-cut policy and warned against reducing the rate precipitously. It was expected that the current range of rates might have reached its peak. The ongoing progress in fighting inflation was also a topic of discussion, with some committee members pointing to the risk that these advances could stall. Although the Fed kept its federal funds rate unchanged at its latest meeting, there are indications of possible cuts over the course of the year, yet the exact timing remains uncertain. Federal Reserve Chairman Jerome Powell considered a cut in March unlikely. Another significant concern remains the continuous high attention to potential upside risks in price development, even though the intensity of concern has diminished in this respect. A strong economy and solid labor market could continue to pose challenges in the fight against inflation, despite signs of stronger-than-expected demand. Furthermore, the committee plans to address the issue of reducing the central bank's balance sheet at the upcoming meeting in March. In 2022, the Fed began downsizing its balance sheet as part of a tighter monetary policy by not replacing bonds purchased during the pandemic. Meanwhile, financial market investors showed only a muted reaction to the release of the minutes, reflecting the priced-in expectations regarding the Fed's monetary policy direction.