Fed minutes show deep divisions on rate cut

August 22, 2019 09:22
Minutes from the US central bank's July policy meeting have revealed that several policymakers were opposed to a rate cut. Photo: Reuters

US Federal Reserve policymakers were deeply divided over whether to cut interest rates last month but were united in wanting to signal they were not on a preset path to more cuts, Reuters reports, citing minutes of the central bank's July 30-31 meeting.

Minutes from the two-day meeting released on Wednesday showed policymakers’ ultimate decision to lower the Fed's benchmark interest rate by a quarter percentage point drew more opposition than was reflected in the rate-setting panel’s 8-2 vote, the report noted.

While a “couple” of participants favored a deeper cut of half a percentage point to help lift inflation toward the Fed’s target and thwart fallout from global trade tensions, a larger number - characterized in the minutes as “several” - favored no change at all.

The depth of the debate raises the stakes for the signal that Fed Chairman Jerome Powell is set to deliver on Friday at the central bank's annual policy retreat in Jackson Hole, Wyoming, Reuters noted.

It also shows a Federal Reserve not eager to give US President Donald Trump the larger rate reductions he is demanding.

The divisions revealed in the minutes indicate there might have been more dissents if all participants had a vote. While Fed board governors are permanent voters, only five of the 12 regional reserve bank presidents have a vote at each meeting.

At the same time, the minutes also showed broad concern among policymakers over a global economic slowdown, trade tensions and sluggish inflation.

Since that meeting, the Fed has come under increasing pressure to cut borrowing costs more, including a call by Trump on Wednesday for the Fed to slash its benchmark rate.

However, Fed policymakers agreed at their July 30-31 meeting that they did not want to give the impression they were planning more rate cuts.

“Participants generally favored an approach in which policy would be guided by incoming information ... and that avoided any appearance of following a preset course,” according to the minutes.

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