Fed minutes show officials' thinking on interest rate cut

The Fed has released the minutes of the Federal Open Market Committee (FOMC) meeting held on September 17-18.

The minutes of the latest meeting, where the policy rate was cut for the first time in 4 years, being reduced by 50 basis points to the 4.75-5.00 percent range, showed the differences of opinion among officials regarding the scale of the interest rate cut.

The minutes stated that in light of progress on inflation and the balance of risks, all officials agreed on the appropriateness of easing the monetary policy stance.

Noting that a "substantial majority" of officials supported a 50 basis point cut to the policy rate given the significant progress made, the minutes stated, "However, some officials noted that they would have preferred a 25 basis point reduction in the policy rate at this meeting, and a few others indicated that they could have supported such a decision, pointing out that economic growth remains strong and unemployment remains low while inflation is still somewhat high."

The minutes reported that some officials stated a 25 basis point rate cut would be consistent with a gradual policy normalization and would allow policymakers time to assess the degree of policy restrictiveness as the economy evolves.

Noting that almost all officials assessed that recent monthly data were consistent with inflation returning to 2 percent in a sustainable manner, the minutes provided the information that, "Regarding the inflation outlook, almost all officials indicated that their confidence that inflation is moving sustainably toward 2 percent has increased."

The minutes stated that officials agreed that labor market indicators should be closely monitored, with some pointing out that as conditions in the labor market loosen, the risk of continued easing turning into a more serious deterioration has increased. 

The minutes, which noted that risks and uncertainties regarding the economic outlook were also discussed, stated, "Almost all participants indicated that upside risks to the inflation outlook have decreased, while downside risks to employment have increased."

The decision to cut interest rates by 50 basis points at the Fed's last meeting in September was taken with an 11 to 1 vote. Fed Board Member Michelle Bowman cast a dissenting vote, favoring a 25 basis point interest rate cut.

The Fed's next meeting will be held on November 6-7.

News Source: AA