The U.S. Federal Reserve’s Open Market Committee has put a real damper on things for speculators: they had hoped that interest rates in the United States would be decreased as early as the first quarter. It seems this is not the case.

The Minutes of the Federal Open Market Committee’s December meeting (FOMC) of the U.S. Federal Reserve, known as the Fed, have dampened the prospect of interest rate cuts from March. As stated in the minutes of the meeting, which were released on Wednesday evening, the majority of FOMC members wanted to keep borrowing costs and thus interest rates high «for some time».

In doing so, the committee has shied away from making a clear decision on direction. It is true that the body is optimistic that the Fed can curb inflation. However, the members did not want to commit to an immediate loosening of monetary policy.

Restrictive for a While Longer

Instead, the bankers at the Fed affirmed that it is appropriate for the policy to remain restrictive for a while longer until inflation is clearly and sustainably moving towards the FOMC target.

In December, the U.S. Federal Reserve surprised the markets with the statement that there could be three quarter-point rate cuts over the course of 2024. Now the committee is backpedaling. According to the minutes of the meeting, it still sees the interest rate as «likely at or near its peak». There is also «a high degree of uncertainty» surrounding the economic outlook.

Postponed Until June?

«They’re not willing to say that we’ve won,» commented David Kelly, chief strategist at J.P. Morgan Asset Management to British newspaper, the «Financial Times» (paid article). He was referring to the Fed’s battle against inflation. The Fed bankers seem to be a «rather gloomy, worried bunch,» he judged. «So long as the economy remains strong, or solid, they will, I think, remain on the sidelines.»

Kelly now expects the first rate cut from June.

«Tepid Reaction»

The minutes show «a lack of conviction that they have conquered inflation,» Jeremy Schwartz, economist at Japanese bank Nomura, also stated. «That seems out of line with the early and rapid pace of cuts the market is currently pricing in.»

«The pushback from Fed officials has been somewhat tepid,» said Andrew Hollenhorst, economist at the major U.S. bank Citi. «Nobody has come out and said: ‹we won’t cut in March›. But the suggestion that the market pricing is a little bit aggressive is out there.»