Fed concerned about cutting rates too soon, minutes of Jan. 30-31 meeting show

By Howard Schneider and Lindsay Dunsmuir

WASHINGTON (Reuters) – The bulk of policymakers at the Federal Reserve’s last meeting were concerned about the risks of cutting interest rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level, according to the minutes of the Jan. 30-31 session.

“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained” to return inflation to the Fed’s 2% target, said the minutes, which were released on Wednesday.

Whereas “most participants noted the risks of moving too quickly to ease the stance of policy,” only “a couple … pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long.”

U.S. stocks fell slightly following the release of the minutes while the U.S. dollar was little changed against a basket of currencies. U.S. Treasury yields rose.

Fed policymakers also “generally” agreed they needed “greater confidence” in falling inflation before considering cutting rates, the minutes said in language that seemed to emphasize a careful and perhaps slower approach to rate cuts that market participants had expected to commence in June.

“Some participants” cited a risk that progress on inflation could outright stall if the economy continued to perform as strongly as it has, the minutes said.

After the publication of the minutes, investors in contracts tied to the Fed’s benchmark policy rate continued to see the central bank beginning to reduce borrowing costs in June.

“As long as the labor market holds up, the Fed can afford to slow-walk rate cuts. Inflation-fighting is much easier when the labor market cooperates,” said Jamie Cox, managing partner at Harris Financial Group.

‘GREATER CONFIDENCE’

The Fed at its January meeting held its benchmark overnight interest rate steady in the 5.25%-5.50% range set in July, and opened the door to rate cuts once policymakers “gained greater…