Fed officials favoured rate cut last month but remained wary about inflation

Washington — Federal Reserve officials agreed at their recent policy meeting that risks to the US job market had increased enough to warrant an interest rate cut, though many remained wary of high inflation amid a debate about how much borrowing costs were weighing on the economy, according to the minutes of the September 16-17 meeting.

“Most participants observed that it was appropriate to move the target range for the federal funds rate towards a more neutral setting because they judged that downside risks to employment had increased,” the minutes read.

They also captured the emerging discussion between Fed officials most concerned about protecting the labour market and relatively unconcerned now about inflation, including new governor Stephen Miran, and those who see signs of inflation remaining persistently above the US central bank’s 2% target.

Yet at the same time “a majority of participants emphasised upside risks to their outlooks for inflation, pointing to inflation readings moving further from 2%, continued uncertainty about the effects of tariffs” and other factors, the minutes state.

The result was that while “most judged that it likely would be appropriate to ease policy further over the remainder of this year”, the timing and pace of further moves remained in question in a divided Federal Open Market Committee.

“Some participants noted that, by several measures ... monetary policy may not be particularly restrictive, which they judged as warranting a cautious approach” towards further rate cuts.

“A few participants” said there was “merit” in keeping the policy rate steady, while at the other end of the spectrum “one” of them advocated a larger half-percentage-point cut.

Miran, on leave from his job as a White House economic adviser, dissented in favour of a larger half-percentage-point cut, with more to follow at coming meetings.

Almost even split

The Fed cut its benchmark policy rate by a quarter of a percentage point in September to the 4%-4.25% range. New projections showed the median policymaker expected two more such cuts this year.

The projections, however, showed an almost even split among the 19 participants at the meeting, with nine anticipating two cuts and Miran seeing many more, and the remaining nine seeing only one or no more cuts.

Investors have set their expectations for two cuts, but the minutes showed a textured debate over the risks facing the US economy and just how much restraint current policy is actually having on investment and spending.

Speaking after the end of last month’s meeting, Fed chair Jerome Powell said monetary policy remained at a “clearly restrictive level”, though he remained noncommittal about further reductions in rates.

The Fed’s next policy meeting is slated for October 28-29, with another 25 basis-point cut anticipated by financial markets. The analysis and commentary since last month’s meeting, however, have been complicated by a federal government shutdown that has delayed release of the September jobs report and could postpone publication of the next round of consumer price data scheduled for next week.

Reuters