US Federal Reserve officials were wary of cutting interest rates too quickly

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Federal Reserve officials were wary of cutting interest rates too quickly this year, according to a record of their last meeting in January, as they remained “highly attentive” to the risk of resurgent inflation.

While rate-setters were content with progress on reducing inflation and meeting the Fed’s goal of full employment, the minutes confirmed their view that it was too soon to consider cutting rates from their 23-year high of between 5.25 per cent to 5.5 per cent.

“Participants noted that the economic outlook was uncertain and that they remained highly attentive to inflation risks,” the record of the meeting, published on Wednesday, said.

Market reactions were muted, with US stocks on Wednesday recovering from a brief dip and the two-year Treasury yield, which moves with interest rate expectations, quickly reversing a modest rise. Bets on the pace of Fed rate cuts this year were little changed.

The release of the minutes come three weeks after Jay Powell used his post-meeting press conference on January 31 to push back against markets’ expectations that the central bank would begin cutting rates as soon as March — a hawkish stance that sparked a sell-off across US equity markets.

Powell also confirmed in January that the Federal Open Market Committee would begin discussions on when to start slowing the sale of US government bonds to reduce the size of its balance sheet.

The Fed has been allowing as much as $60bn worth of Treasuries and $35bn of mortgage-backed securities to roll off its balance sheet under its so-called quantitative tightening programme.

The Fed bought trillions of dollars in US government debt during the early stages of the pandemic to stave off a market meltdown. But that policy ended in 2022 as inflation soared.

According to the minutes officials discussed “an eventual decision to slow the pace of run-off”…