At last month’s meeting, Fed officials debated whether it might be wise to slow or even pause the reduction of their balance sheet holdings, given renewed concerns over the federal debt ceiling. The Minutes revealed that the staff’s economic outlook remained largely unchanged from December.
Key highlights from the January 28-29 meeting include:
All participants agreed it was appropriate to hold the target interest rate unchanged. Some participants cited potential changes in trade and immigration policy as having the potential to hinder the disinflation process. The vast majority of participants judged risks to dual mandate objectives were roughly balanced, though a couple noted that risks to achieving the inflation mandate appeared greater than those to the employment mandate.
Various participants suggested it may be appropriate to consider pausing or slowing the balance sheet runoff until the resolution of debt ceiling dynamics. Many participants stated that after the conclusion of the balance sheet runoff, it would be appropriate to structure asset purchases to move the maturity composition closer to the outstanding stock of Treasury debt. The Fed survey respondents anticipated the balance sheet runoff process concluding by mid-2025, slightly later than previously expected.
In initial discussions of the framework review, policymakers expressed openness to changing elements introduced in the 2020 document.
The Federal Open Market Committee (FOMC) unanimously voted to keep the policy rate unchanged at the January meeting. The statement indicated that officials were confident progress in reducing inflation would likely resume later this year but emphasized the need to pause and await further data to confirm this outlook. In the post-meeting press conference, Fed Chairman Jerome Powell reiterated that there was no need to rush adjustments to policy.
Philadelphia Fed President Patrick Harker and Atlanta Fed President Raphael Bostic both emphasized the need for patience in the policy outlook, suggesting that the next rate cut could happen later to allow more time for information.
The FOMC will release the minutes of the January 28-29 policy meeting at 19:00 GMT on Wednesday. Investors will scrutinize the discussions surrounding the policy outlook. If the publication indicates policymakers are willing to wait until the second half of the year before reconsidering rate cuts, the US Dollar (USD) could gather strength against its rivals. However, if the document repeats the patient approach without providing fresh clues on timing, the market reaction could remain subdued.
According to the CME FedWatch Tool, markets see virtually no chance of a 25 basis point rate cut in March and price in a more than 80% probability of another policy hold in May.
— news from FXStreet