Fed officials were sharply divided over September rate cut

Galtero Lara
Octubre 12, 2019

Several Fed members justified last month's rate cut due to sluggish inflation readings, which still trail below the Fed's symmetric 2% target measured via core PCE inflation.

While the outlook remains good for the moment - with strong jobs markets, historically low unemployment and the general public continuing to loosen purse strings - weaker recent economic data have put clouds on the horizon, the minutes from the Federal Reserve's September 17-18 meeting showed. Also, Federal Reserve staff noted that risk to the central bank's GDP growth forecast is tilted to the downside. The financial markets always scrutinize the minutes of the Fed for possible clues about future monetary policy. "I'm not sure. But I'm certainly open minded to those arguments", said Mr Evans, who supported both Fed rate cuts this year to help the Fed faster achieve its 2 per cent inflation goal.

The CME Group, which tracks futures trading on the Fed's policy rate, is now putting the chance of a third cut in October at around 84%.

Federal Reserve Chairman Jerome Powell hinted this week that the central bank is leaving the door open to another rate cut later this month.Speaking in Denver, he said any decision would be "data-dependent", adding the outlook for the USA economy is favorable.

At its September meeting, Federal Reserve officials began debating how far their current interest-rate cutting campaign should extend, even as they agreed to lower rates in response to growing risks to the US economy.

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"Important factors in that assessment were that worldwide trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the USA economy than to resolve more favorably than assumed", the minutes said.

The September rate cut, which followed a cut in July that was the first in a decade, was approved on a 7-3 vote.

James Bullard, president of the St. Louis regional bank, dissented in the other direction, arguing that the threats to the economy were large enough that a bigger cut was needed.

In a break from recent past White House practice, President Donald Trump has repeatedly and publicly attacked Powell and the Fed, accusing them of keeping interest rates too high. Three of the ten officials with voting rights were against the move.

Mr. Powell acknowledged risks to the US economy from global developments during his remarks Tuesday but played down any worries about a recession on the horizon. The Fed had been reducing its holdings that had surged to a peak of $4.5 trillion in the wake of the Great Recession as it engaged in several rounds of bond purchases aimed at lowering long-term rates and giving the economy a boost. Powell said that while various options were being weighed for providing more stability for the short-term funding markets, the effort should not be considered a new round of quantitative easing.

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