The Fed is starting to be cautious.

"All members of the Federal Open Market Committee (FOMC) believe that it can proceed cautiously" - verbatim from the minutes of the most recent Fed meeting.

Inflation in the US has slowed as October consumer price data showed positive signs. While the Fed has not yet declared victory, the market has begun discussing how long it will maintain the 5.25%-5.50% rate.

The meeting minutes also stated: “Note that further tightening of policy would be appropriate if progress toward the target is not met.” This statement suggests there will be some degree of unexpected shock to trigger further interest rate increases.

This indication was absent from the September minutes. At that time, the majority of Fed officials still believed that another interest rate hike would be necessary.

Conversely, the latest policy meeting minutes stated that “all participants assessed that maintaining” the current interest rate level was appropriate – a position that will be clarified at the December 12-13 meeting.

This document has drawn very little reaction from financial markets. The majority have affirmed that the Fed has completed its interest rate hikes.

The recent minutes reveal that Fed policymakers are grappling with conflicting economic signals, making the risks to the economy more "two-sided." Smearing inflation remains a concern, alongside overly tight credit controls that are harming the outlook for the US economy.

The U.S. economy just hit an impressive 4.9% annual growth rate in the third quarter. This is good for the U.S. government , but not good for the Fed. However, financial markets have pushed for higher interest rates for U.S. households, businesses, and the government, threatening to curb economic growth and employment more than necessary to bring inflation back to the 2% target.

According to the minutes, inflation “remains significantly higher” than the target, potentially requiring the Fed's policy to “remain restrained for some time until inflation falls to a sustainable, clear level.”

Ian Lyngen, an expert at BMO Capital Markets, commented: "The overall tone in the FOMC minutes was cautiously hawkish."

Federal Reserve Chairman Jerome Powell used the term "prudent" in a recent press conference to describe the Federal Reserve's efforts to balance still-rising inflation with signs of a slowing U.S. economy. The leader's view is well-founded. The Fed still has the potential for a "soft landing."

A study by the New York Fed, released on Tuesday, showed that, in fact, the Federal Reserve's decision to start raising interest rates later (about a year after prices had risen) allowed the US economy to grow more.

However, policymakers seem reluctant to hint at the next course of action.

Powell said at an International Monetary Fund research conference earlier this month: “Inflation has presented us with some false alarms. If further tightening becomes appropriate, we would not hesitate to maintain it. However, we will continue to proceed cautiously to address both the risk of being misled by a few months of good data and the risk of over-tightening.”

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