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The minutes of the Federal Reserve's latest monetary policy meeting reiterated officials widely expect to begin lowering interest rates in 2024, although they also highlighted an "unusually elevated degree of uncertainty" about the outlook for rates and the economy.
Projections provided by Fed officials at the December 12-13 meeting suggested three quarter point rate cuts by the central bank are likely by the end of 2024.
The forecasts were backed up by the minutes, which said baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024.
However, the minutes said participants also noted an unusually elevated degree of uncertainty and that it was possible further rate increases could be appropriate.
Several participants also observed that circumstances might warrant keeping rates at current levels for longer than they currently anticipated, the minutes said.
The Fed said, "Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions."
The minutes indicated the high degree of uncertainty surrounding the economic outlook was partly due to the possibility that the momentum of economic activity may be stronger than currently assessed, posing an upside risk to both inflation and economic activity.
Participants also observed that financial conditions had eased over the intermeeting period, potentially making it more difficult for the Fed to reach its goal of 2 percent inflation over time.
The effects geopolitical developments have on global energy and food prices, a potential rebound in core goods prices and the effects of nearshoring and onshoring activities also pose upside risks to inflation, the minutes said.
Meanwhile, a number of participants pointed to the downside risks to the economy that would be associated with an overly restrictive policy stance, with a few suggesting the Fed could potentially face a tradeoff between its dual-mandate goals in the period ahead.
The Fed's next monetary policy meeting is scheduled for January 25-26, with the central bank widely expected to leave interest rates unchanged.
CME Group's FedWatch Tool currently indicates there is a 66.5 percent chance the Fed could lower rates by a quarter point at its following meeting in March.
