MNI: Some FOMC Members Sought Smaller 25BP Cut in Sept-Minutes
Federal Reserve officials were divided on how much to cut interest rates last month, with some participants preferring to cut by a more modest quarter point rather than the 50 basis points that was ultimately delivered, minutes of the September meeting showed Wednesday.
"Noting that inflation was still somewhat elevated while economic growth remained solid and unemployment remained low, some participants observed that they would have preferred a 25 basis point reduction of the target range at this meeting, and a few others indicated that they could have supported such a decision," the report said.
"Several participants noted that a 25 basis point reduction would be in line with a gradual path of policy normalization that would allow policymakers time to assess the degree of policy restrictiveness as the economy evolved. A few participants also added that a 25 basis point move could signal a more predictable path of policy normalization."
The discussion indicated there was more disagreement in the committee than the single dissent of Fed Governor Michelle Bowman in favor of a 25 bp cut would have suggested. The target fed funds rate is now 4.75%-5%. The Fed's Summary of Economic Projections for the September meeting showed officials penciling in two more quarter point rate cuts for this year, and rates ending 2025 at 4.1%. The jobless rate was seen peaking at 4.4% this year and next.
"A substantial majority of participants supported lowering the target range for the federal funds rate by 50 basis points," the report said. "Participants emphasized that it was important to communicate that the recalibration of the stance of policy at this meeting should not be interpreted as evidence of a less favorable economic outlook or as a signal that the pace of policy easing would be more rapid than participants' assessments of the appropriate path."
Since the meeting, a strong employment report for September has moderated expectations for further aggressive cuts, with investors now expecting more gradual cuts and even bracing for a possible pause if inflation data heat up again.
The economy generated 254,000 new jobs last month, the highest tally in six months, while the jobless rate fell to 4.1%. At the same time, GDP growth is hovering around 3%, prompting some policymakers like Dallas Fed President Lorie Logan to call for future rate cuts to be gradual.
"Almost all participants saw upside risks to the inflation outlook as having diminished, while downside risks to employment were seen as having increased," the minutes said.
The report showed there is also substantial divergence among policymakers on the degree of restrictiveness of policy -- which is in line with differing views about the neutral rate.
"Some participants noted that uncertainties concerning the level of the longer-term neutral rate of interest complicated the assessment of the degree of restrictiveness of policy and, in their view, made it appropriate to reduce policy restraint gradually," the Fed said.