WASHINGTON – Federal Reserve officials agreed to cut interest rates at their September meeting, but were unsure how aggressively to cut them and were unsure whether they would ultimately cut them, according to minutes released Wednesday. The Bank said it decided to cut interest rates by 0.5 percentage point to balance confidence in inflation and concerns about the labor market. .
The summary of the meeting detailed why policymakers decided to approve the first major 50 basis point (bp) cut in interest rates in more than four years, and noted that members were divided over the economic outlook. showed.
Some officials had hoped for a smaller quarter-point cut, as they sought confidence that inflation was falling sustainably and as concerns about the employment situation waned.
In the end, only one member of the Federal Open Market Committee, Gov. Michelle Bowman, voted against the half-point cut, saying she would have preferred a quarter-point cut. But minutes show other voices also supported smaller measures. This is the first time since 2005 that the Fed’s president has opposed an interest rate vote for the Fed, known for its cohesiveness in monetary policy.
“Some participants suggested that it would have been better to lower the target range by 25 basis points at this meeting, and others could have supported such a decision,” the minutes read. “He said,” it is written.
“Several participants said the 25 basis point reduction was in line with a gradual path to policy normalization, giving policymakers time to assess the degree of policy restrictions as the economy develops,” the document said. “It will be given,” he added. “Several participants also added that a 25 basis point increase could signal a more predictable path to policy normalization.”
Since the meeting, economic indicators have shown that the labor market is perhaps stronger than expected by officials who supported a 50 basis point hike.
Non-farm payrolls increased by 254,000 people in September, much more than expected, and the unemployment rate fell to 4.1%.
The statistics helped reinforce expectations that while the Fed is likely in the early stages of an easing cycle, future rate cuts are likely to be less aggressive than September’s actions. In recent days, Chairman Jerome Powell and other Fed officials have stood by their forecast for a 50-basis point rate cut, as outlined in the Dot Plot, an unofficial forecast released after the September meeting.
The minutes noted that the vote to approve the 50 basis point (bp) cut was taken “taking into account the evolution of inflation and the balance of risks” to the labor market. Minutes said a “significant majority of participants” supported the larger move, but did not say how many opposed it. The term “participants” suggests the participation of the entire FOMC, not just the 12 voters.
The minutes also noted that some members supported the cuts at the July meeting, but they did not materialize.
The document provided more details about the debate over whether to approve the 25 basis point cut, but less information about why voters supported the larger measure.
In his post-meeting press conference, Chairman Powell used the word “recalibration” to summarize the decision to cut interest rates, and the word also appears in the minutes.
“Delegates convey that the readjustment of policy stance at this meeting should not be interpreted as confirmation of a deterioration in the economic outlook or as a signal that the pace of policy easing will be faster than participants assess. “Stressed the importance of “selecting the appropriate route,” the minutes state.
Such a readjustment would bring policy “better in line with recent inflation and labor market indicators.” Supporters of the 50 basis point cut also stressed that “these measures will help maintain the strength of the economy and labor market while continuing to drive inflation forward, and will reflect the balance of risks.” did.
Under normal circumstances, the Fed prefers to cut interest rates in quarter-point increments. So far, the only times the Fed has moved half a point was during the coronavirus pandemic and before that, during the 2008 financial crisis.
According to CME Group’s FedWatch, market prices predict that the federal funds rate will be in the range of 3.25-3.5% by the end of 2025, roughly in line with the median forecast of 3.4%. . Futures markets have signaled a more aggressive course, and in fact are currently pricing in a roughly one-in-five chance that the Fed will not cut rates at its Nov. 6-7 meeting.
However, the behavior of the bond market is different. Since the Fed meeting, both the 10-year and 2-year Treasury yields have risen about 40 basis points.