The minutes of the Federal Reserve’s November monetary policy meeting were officially released on November 28. This 23-page document has attracted great attention from the global financial market. The content of the minutes clearly shows that there are obvious differences among Federal Reserve policymakers on the future monetary policy path, and these differences are more prominent than ever before. The minutes indicate that many members of the Federal Open Market Committee (FOMC) who participated in the meeting clearly opposed further interest rate cuts in the near future. They believe that the process of U.S. inflation falling back to the 2% target has stagnated. The U.S. core personal consumption expenditures (PCE) price index rose by 3.4% year-on-year in September, remaining at this level for three consecutive months, and did not continue to decline as expected. These hawkish committee members are worried that if interest rate cuts are initiated before inflation is effectively controlled, it may lead to an upward shift in long-term inflation expectations, making the previous efforts to curb inflation in vain, and may even trigger the risk of a “wage-price spiral” increase.

This hawkish stance is in sharp contrast to the current market’s widespread expectation of interest rate cuts. In the previous week, New York Fed President Williams hinted in a public speech that “if economic data meets expectations, it may be considered to adjust the monetary policy stance in the short term”. This statement was interpreted by the market as a signal of interest rate cuts, pushing the interest rate swap market to price in a 70% probability of the Federal Reserve cutting interest rates in December. However, the meeting minutes reveal the core contradiction within the Federal Reserve: the trade-off between the resilience of the job market and inflation risks. On the one hand, the U.S. unemployment rate remained at a low level of 3.7% in October, with 150,000 new non-farm jobs added. The strong performance of the job market makes some committee members believe that the economy still has support, and there is no rush to cut interest rates. On the other hand, the current situation of inflation continuing to be higher than the target makes other committee members worry that the prolonged tightening policy may trigger an economic recession. This divergence was also reflected in the voting session. The Federal Reserve’s decision to keep interest rates unchanged in November was passed with a 7:2 vote, and two committee members voted against it, advocating an immediate interest rate cut.

What makes the situation more complicated is that the lack of key economic data has further increased policy uncertainty. Affected by the short-term government shutdown caused by the budget dispute between the two parties in the U.S. Congress, many key economic data releases by institutions such as the U.S. Bureau of Labor Statistics and the Department of Commerce have been delayed, including the October core PCE price index and the third-quarter GDP revised value. Investors can only rely on data from September and earlier to judge the economic trend, which increases the difficulty of the market’s prediction of the Federal Reserve’s policy. Michael Feroli, chief economist at JPMorgan Chase, said that the delayed data may cause the Federal Reserve to be more cautious in the December meeting, and the policy decision will rely heavily on retail sales, unemployment benefits claims and other data released one week before the meeting. From the market reaction, after the release of the meeting minutes, the U.S. dollar index rose by 0.3% in the short term to 103.8, and the three major U.S. stock indexes fell slightly, reflecting the market’s moderate revision of interest rate cut expectations. The industry expects that the U.S. dollar index will fluctuate within the range of 103-105 in the short term. Investors need to focus on the U.S. inflation and employment data to be released in early December, which will become the key basis for the Federal Reserve to set its policy tone.