The Fed’s on a road to somewhere, they just don’t know where.

That was one takeaway from the November FOMC minutes, released late Tuesday into what, had the US election turned out differently, would’ve been a pre-holiday lull, but instead was a headline-heavy session defined by tariff threats and, naturally, allegations of influence peddling.

Generally speaking, Fed officials agree it’s appropriate to lower rates such that policy settings converge downward to neutral. The problem’s the same as it always is: Neutral’s a theoretical construct and as such it’s impossible to observe, let alone geolocate.

On this point, I’m adamant: The adjective “restrictive” as it applies to monetary policy only has meaning in relation to the neutral rate. Put as a question: “Restrictive” relative to what? If you don’t have a pretty good idea where neutral is, you can’t say, with anything approaching confidence, whether policy is or isn’t “restrictive.”

So, when policymakers like Jerome Powell concede they don’t know where neutral is while simultaneously insisting that policy’s “restrictive,” they’re trafficking in contradictions at best, in nonsense at worst.

“Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually,” the November minutes said. That’s pretty much the best you can do when you’re fumbling around in the dark — proceed “gradually,” or carefully.

There are, of course, ways of guesstimating where neutral might be. The issue for a Fed that wants badly to cut rates is that pretty much all of those signposts suggest neutral’s not just a little higher in the post-pandemic world, but a lot higher, particularly in the US, where well-to-do households and blue-chip corporates have a nice arb going.

The figure below’s familiar, and it’s one of my favorites. The variable-rate share of household debt was well below pre-pandemic levels late last year even after rising pretty steeply from record lows, and corporate interest payments as a share of profits have never been lower.

Juxtapose that with the highest rates on money market funds and corporate cash piles in nearly a quarter century, and you have a recipe not only for resilience, but in fact for higher spending given that rates were high and rising on savings while rates on debt were low and fixed.

That conjuncture impaired the monetary policy transmission channel in the US and almost surely prolonged the expansion. The underlying dynamic’s still operating, even as lower-income households and lower-rated corporates struggle.

Anyway, neutral’s higher. Considerably higher. In fact, we might be there right now, which is to say additional Fed cuts may actually be tantamount to easing not just “less restriction,” as the Committee likes to put it. Indeed, “some participants” at this month’s policy gathering “judged that downside risks” to the US economy and labor market “had diminished.”

The word “pause” came up, albeit alongside the obligatory nod to the possibility of cutting faster should the labor market suddenly deteriorate. “Some participants noted that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated, and some remarked that policy easing could be accelerated if the labor market turned down or economic activity faltered,” the minutes said, noting that while “upside risks to the inflation outlook were seen as little changed, downside risks to employment and growth were seen as having decreased somewhat.”

That’s really all you need to know. Bottom line: The Fed realizes the pace of rate cuts may need to be more gradual than pondered previously in light of a labor market which, hiccups and hurricanes aside, isn’t demonstrating the sort of weakness that traditionally demands looser policy and a services economy which isn’t demonstrating any weakness at all.

Oh, and if you were wondering, a word search of the November minutes produces no matches for “tariff.”