Fed policymakers increasingly divided on way ahead: minutes

October 10, 2019 09:41
Fed officials remain divided on the path ahead for monetary policy, meeting minutes show. Photo: Reuters

Most Federal Reserve policymakers supported the need for an interest rate cut in September, but they remained divided on the path ahead for monetary policy, Reuters reports, citing the minutes of the US central bank’s policy meeting last month.

The readout of the meeting, released on Wednesday, also showed that the Fed agreed it would soon need to discuss increasing the size of its balance sheet following ructions in short-term money markets, the report said.

Fed Chair Jerome Powell announced an imminent expansion of the central bank’s assets on Tuesday.

At their Sept. 17-18 meeting, Fed policymakers decided, in a 7-3 vote, to lower the benchmark overnight lending rate by a quarter percentage point to between 1.75 percent and 2 percent.

“Most participants believed that a reduction of 25 basis points in the target range for the federal funds rate would be appropriate,” the Fed said in the minutes. The US central bank has lowered borrowing costs twice this year after having raised interest rates nine times since 2015.

But what remains unclear from the minutes is how a softening in economic data since that meeting will affect viewpoints on the need for further rate cuts, if at all.

In projections that accompanied the September statement, seven of the Fed’s 17 policymakers indicated they forecast one more rate cut this year. Five policymakers did not see any more cuts needed and the other five projected a rate rise by the end of 2019.

Investors overwhelmingly expect another rate cut at the next meeting on Oct. 29-30.

Fed Chair Jerome Powell is in the camp that views rate cuts that have occurred as necessary insurance in order to keep the longest US economic expansion on record going.

But others, such as Boston Fed President Eric Rosengren and Kansas City Fed President Esther George, still do not see the need for rate cuts when the economy is growing moderately and unemployment is near a 50-year low.

The minutes showed Fed policymakers generally have become more concerned with trade risks and other headwinds to the economy, such as slowing global growth and the uncertainty over Brexit.

But that was where the consensus mostly ended. Several policymakers felt it would be prudent for the Fed to cut rates now to guard against risks while several others said the current US economic outlook did not justify a rate cut.

Several policymakers noted that statistical models suggested the likelihood of a recession over the medium term had increased in recent months and a number warned that the labor market coming into 2019 may have been less strong than previously thought.

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