The FOMC reduced the federal funds rate by 25 basis points to 4.5%–4.75%, citing solid GDP growth, easing inflation, and resilient labor markets. Despite progress, core inflation at 2.7% remains elevated, and risks in commercial real estate and household debt warrant monitoring.
The Federal Open Market Committee (FOMC) convened on November 6–7, 2024, to assess the U.S. economy and discuss its monetary policy direction. The minutes reflect a comprehensive review of economic conditions, financial markets, risks, and the Committee’s policy decisions. This analysis highlights their findings and the rationale behind key actions.
Economic Conditions
The U.S. economy demonstrated resilience, with solid growth continuing through 2024. Strong consumer spending was a primary driver supported by rising real wages and a robust labor market. The pace of job gains has moderated, reflecting some easing in labor market conditions. Despite disruptions caused by labor strikes and hurricanes, unemployment peaked slightly at 4.1%, remaining historically low.
While easing, inflation continues to be a focal point. In September, the 12-month PCE inflation rate was 2.1%, with core PCE inflation (excluding volatile food and energy prices) at 2.7%. This progress reflects the Federal Reserve’s tightening measures over the past year.
Participants noted that price increases in housing services and other core areas are moderating, bolstered by slowing rent growth and improved supply-demand balances in the housing market. However, the Committee emphasized that inflation risks remain persistent, particularly in the shelter and service sectors.
Economic growth has varied internationally. While the euro area and Mexico experienced stronger activity, manufacturing output remained weak globally due to tight monetary policies. Inflation abroad eased in several advanced economies, largely due to lower energy prices, while core inflation remained high in many regions.
Monetary Policy Adjustments
At this meeting, the FOMC reduced the federal funds rate by 25 basis points, setting a target range of 4.5%–4.75%. This decision was made to maintain economic growth while progressing toward the 2% inflation target.
The adjustment builds on previous reductions, ensuring a balance between easing financial conditions and sustaining price stability. The Committee also agreed to continue reducing the Federal Reserve’s securities holdings in alignment with its monetary policy objectives.
Participants emphasized that further adjustments would be data-dependent. They noted the importance of monitoring economic trends and inflationary pressures to ensure the policy stance aligns with evolving conditions. A gradual shift toward a neutral monetary policy stance is anticipated, contingent on sustained disinflation and stable labor market conditions.
The Committee remains cautious about easing policy prematurely. While the economic outlook appears favorable, participants acknowledged uncertainties in the neutral interest rate, making it prudent to reduce policy restraint gradually. This approach reflects the Federal Reserve’s dual mandate to promote maximum employment and ensure price stability.
Financial Market Developments
Treasury yields rose significantly over the intermeeting period, driven by higher real yields and inflation compensation. Shorter maturities reflected increases in real yields and inflation expectations, while rising term premiums primarily influenced longer-term yields. These developments signaled improved investor confidence in the U.S. economic outlook.
The equity markets experienced notable gains, supported by robust corporate earnings and incoming economic data. Credit spreads for corporate and municipal bonds narrowed, further reflecting market optimism.
However, the VIX, a measure of market volatility, fluctuated due to uncertainties surrounding the U.S. presidential election and geopolitical tensions in the Middle East. By the end of the period, volatility had subsided.
Short-term funding markets remained generally stable. The Federal Reserve’s Standing Repo Facility (SRF) saw its first non-test usage, indicating its role as an effective backstop during periods of market stress. The usage of the Overnight Reverse Repurchase Agreement (ON RRP) facility declined, reflecting increased Treasury bill supply and improved market conditions.
Internationally, foreign financial markets were influenced by U.S. economic strength and monetary policy. U.S. Treasury yield increases spilled into foreign markets, particularly in advanced economies. In China, policy stimulus measures boosted domestic asset prices, while in Europe, inflation pressures eased, reducing short-term yield growth.
Labor Market Conditions
The labor market remains a cornerstone of economic resilience. Participants noted gradual easing in labor demand, with declines in job vacancies and quit rates, but no signs of rapid deterioration. Layoffs remained low, and businesses reported larger pools of qualified applicants willing to accept more moderate wage offers.
Nominal wage growth has slowed, and the wage premium for job switchers has diminished. These trends and recent productivity gains indicate reduced risks of wage-driven inflation. Participants expressed confidence that the labor market is consistent with the Committee’s maximum employment mandate, although specific sectors, such as manufacturing and agriculture, continue to face challenges.
The Committee remains attentive to potential risks, including the financial strains low- and moderate-income households face. Delinquency rates on credit cards and auto loans have risen modestly, signaling growing vulnerabilities in household credit.
Inflation Risks and Outlook
Participants highlighted disinflationary progress, noting improvements across core goods and services categories. Business contacts reported reluctance to increase prices due to consumer price sensitivity and competitive pressures. However, challenges persist in achieving sustained 2% inflation, particularly in services and housing-related sectors.
Upside risks to inflation include potential global supply chain disruptions, geopolitical tensions, and stronger-than-expected consumer demand. On the downside, weaker global growth and tighter financing conditions could dampen price pressures. Overall, participants judged the risks to achieving price stability roughly balanced.
Financial Stability Considerations
The Committee discussed ongoing vulnerabilities in the financial system. Elevated asset valuation pressures and rising commercial real estate (CRE) delinquencies, particularly in the office sector, remain key concerns. However, some participants noted signs of stabilization in CRE markets.
The banking system was deemed sound, but risks from unrealized losses on long-duration assets persist, particularly as interest rates remain elevated. Leverage in the nonbank financial sector, including hedge funds and life insurers, also warrants monitoring.
Participants emphasized the importance of safeguarding against systemic risks, particularly cybersecurity vulnerabilities and disruptions to critical financial infrastructure.
Future Monetary Policy Direction
The FOMC reaffirmed its commitment to a data-dependent approach, ensuring flexibility to respond to changing economic conditions. Participants agreed that future policy decisions would depend on continued disinflation and stable labor market conditions. The Committee is prepared to pause or accelerate easing as needed to balance risks to growth and inflation.
The minutes reflect optimism that inflation is moving sustainably toward 2%, but participants acknowledged that the process may take longer than anticipated. Maintaining public confidence in the Federal Reserve’s ability to achieve its dual mandate remains a priority.
Conclusion
The November 2024 FOMC meeting underscores the Federal Reserve’s focus on navigating a complex economic environment. By reducing the federal funds rate and maintaining balance sheet reductions, the Committee aims to sustain economic momentum while addressing inflationary pressures. The U.S. economy remains resilient, supported by strong consumer spending, easing labor market conditions, and ongoing disinflation.
Risks remain, particularly in the financial system and global supply chains. However, the Committee expressed confidence in achieving its maximum employment and price stability objectives, guided by a cautious and adaptable policy approach. As the economic outlook evolves, the FOMC’s balanced strategy will be critical in fostering sustainable growth and long-term stability.
Source: Federal Reserve.
