Americans are gearing up for food, family and football on Thursday, but investors were still holding off until Wednesday afternoon before starting to give thanks.
That’s because the Federal Reserve released minutes from its latest meeting at 2 p.m. ET on Wednesday, which provided more clues about the central bank’s thinking on inflation and interest rate hikes.
At the Nov. 2 meeting, the Fed raised rates by three-quarters of a percentage point, its fourth consecutive hike of such a large magnitude. But Fed Chairman Jerome Powell suggested at a press conference that the Fed may soon begin to slow the pace of hikes.
The minutes of that meeting showed that several other Fed policymakers agreed with Powell’s assessment.
“Some participants noted that as monetary policy moved closer to a stance sufficiently restrictive to meet the Committee’s objectives, it would be appropriate to slow the pace of increases in the target range for the federal funds rate,” he said. say the Fed at the minutes.
The Fed added that “a substantial majority of participants judged that a slowdown in the rate of increase would likely be appropriate soon.”
Shares, which were relatively flat and meandering before the minutes were out, rallied after the release. The Dow ended the day with more than 95 points, 0.3%. The S&P 500 rose 0.6% and the Nasdaq rose 1%.
Other Fed members, most notably Vice Chairman Lael Brainard, had also hinted at a slower pace of hikes in recent speeches. However, there have been mixed signals from other Fed officials, who have continued to stress that inflation is not going away and needs to be contained.
To that end, the Fed said in the minutes that inflation remains “stubbornly high” and “more persistent than expected.”
With that in mind, traders now have a more than 75% chance the Fed will raise rates by just half a point at its Dec. 14 meeting, according to CME futures contracts. That’s up from the 52% odds of a half-point increase a month ago, but lower than the 85% odds of a half-point increase calculated last week.
A recent series of inflation reports seem to suggest that the pace of runaway price increases is finally starting to slow down to more manageable levels. The labor market also remains relatively healthy, although the most recent jobless claims data rose from a week ago.
But as long as the labor market remains firm and inflationary pressures continue to ease, the Fed is likely to scale back the magnitude of rate hikes.
Some experts are growing concerned that if the Fed goes too far with rates, the hikes could slow the economy too far and potentially lead to much higher unemployment, job losses and even a recession.
The Fed’s rate hikes have had a clear impact on the housing market, with rising mortgage rates helping to reduce home sales.
Still, Wall Street is growing more confident that the Fed could pull off a so-called soft landing. The Dow soared 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 those two broader market indexes remain down for the year more sharply than the Dow.