Fed Worried About Cutting Rates Too Soon

• Policymakers at the Federal Reserve are cautious about the risks of cutting interest rates too soon, emphasizing uncertainty about the appropriate duration of current borrowing costs.
• Participants highlight uncertainty about maintaining a restrictive monetary policy to reach the Fed's 2% inflation target. While most warn against quick easing, some note risks of an overly restrictive stance.
• The minutes seemed to reinforce the recent message of Fed policymakers that they would be in no hurry to deliver on rate cuts, stressing the need for greater confidence in falling inflation before rate cuts can commence. Still, investors anticipate rate cuts in June.
• The rapid easing in financial conditions during the fourth quarter, after the Fed began signaling that its rate hikes were likely over, had largely run its course by the time officials gathered at the end of January. Since then, the picture has been mixed: Treasury yields have increased by more than a quarter of a percentage point, bringing an end for the time being to a decline in consumer and corporate borrowing costs, but stocks have continued to march to record highs.
• Given what seemed to be falling inflation on the horizon, Ryan Sweet, chief U.S. economist at Oxford Economics, said the concern of Fed policymakers about cutting rates too soon "seems odd," and suggested that risks may be tilting towards overly tight policy beginning to weigh on the economy.
• "If the central bank waits for clear signs that the labour market, or the broader economy, is deteriorating, they will be behind the curve," Sweet wrote. "This could turn a 'soft landing' into a bumpier one."

 (Source: Reuters)