In the minutes from the Federal Open Market Committee last month, the central bank dampened market hope by forecasting only three 25bps cuts throughout the year, while futures markets predict six.

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Committee members “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the committee’s objective”, the minutes said. 

However, the Fed still expressed concerns about the risks that “overly restrictive” monetary policy may pose to the economy, with some members of the FOMC warning the central bank could “face a tradeoff between its dual mandate” of low inflation and low unemployment.

Even as the labour market remains tight, it has “continued to come into better balance”, participants argued, while several said that “healing in supply chains and labour supply was largely complete”.

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“Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings,” the minutes said, while a reference from previous minutes to inflation remaining “unacceptably high” was removed.

US inflation has remained below 4% over the last six months, sitting at 3.1% in November, though has sat above the Fed’s 2% target for almost three years.

Francesco Pesole, FX strategist at ING, said the minutes had not resulted in a “major market impact”, but argued they had failed to support the market’s view that rate cuts will come as early as March.

“The biggest surprise was, however, on a quantitative tightening exit, with the minutes showing that members found it appropriate to start discussing the technical factors to slow the unwinding of the balance sheet,” he added.