**MNI POLICY: FOMC Minutes: Officials Prepared to Cut Rates>

--Top Takeaways From Minutes Of the June 18-19 FOMC Meeting

By Jean Yung and Kevin Kastner

     WASHINGTON (MNI) - The following are the key points from the 

minutes of the June 18-19 FOMC meeting released Wednesday:

     --Many officials favored a near-term rate cut if the recent global 

developments that led to heightened uncertainties to the outlook were 

sustained and continued to weigh on the economic outlook. Several other 

officials thought a near-term cut would be appropriate if the outlook 

deteriorated further. 

     --A rate cut would be justified for a number of reasons. It would 

"help cushion the effects of possible future adverse shocks to the 

economy" from a risk management perspective. It could bolster inflation 

expectations which were at risk of softening; lowered expectations could 

slow the return of inflation to 2% on a sustained basis. A few officials 

would welcome above-2% inflation for "some time" to strengthen the 

FOMC's credibility of commitment to its 2% goal. Several officials saw 

less risk of tight labor markets contributing to inflation pressures. 

     --A few officials warned that rate cuts to lift inflation by a few 

tenths risked overheating the labor market and fueling financial 

imbalances, as the economy was still in a favorable position. 

     --Nearly all officials wanted to keep interest rates unchanged at 

the June FOMC meeting even as they revised lower their projected policy 

path over the next three years. "Many participants indicated that the 

case for somewhat more accommodative policy had strengthened," as risks 

shifted materially to the downside between May and June. But they were 

also were careful to note that the global developments that led to 

heightened uncertainties about the outlook were quite recent. 

     --Financial conditions were supportive of growth, but premised on 

expectations the Fed would cut rates. Officials noted the inverted 

3-month-10-year yield curve and several said they expected the economy 

to slow based on the yield curve or other financial and economic 

indicators. A few warned the Fed should continue to monitor the growing 

debt load of nonfinancial corporations. 

     --Officials discussed whether a fixed-rate standing repo facility 

was needed and how it should be designed, but said more research was 

needed before they could reach a decision. Parameters discussed included 

how to set the facility's rate, the set of counterparties, and 

availability of the facility to firms in stressed conditions.      

     ** MNI Washington Bureau: 202-371-2121 ** 

[TOPICS: MMUFE$,M$U$$$,MAUDR$]