MNI: FOMC Deeply Split On Need For More Rate Cuts - Minutes
Nov-19 19:00By: Pedro Nicolaci da Costa
US+ 1
Federal Reserve officials offered "strongly differing views" about whether to keep cutting rates this year after deciding to reduce them at the October meeting, as policymakers balanced conflicting risks of higher inflation and weaker employment, minutes released Wednesday showed.
"Several participants assessed that a further lowering of the target range for the federal funds rate could well be appropriate in December if the economy evolved about as they expected over the coming intermeeting period. Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year," the report said.
"Most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate as the Committee moved to a more neutral policy stance over time, although several of these participants indicated that they did not necessarily view another 25 basis point reduction as likely to be appropriate at the December meeting," the minutes said
A government shutdown has deprived policymakers of key official data on employment and price pressures, leaving the decision about whether to cut again in December on a razor's edge -- markets now see less than a 50/50 chance of another reduction.
The FOMC is facing a challenging situation where inflation remains elevated but labor market conditions appear to be softening, posing threats to both sides of the dual mandate.
That has deepened divisions among committee participants as many believe rates are already close to neutral and inflation is too high to reduce rates further, while others see risks to the employment outlook as sufficiently serious to warrant lower borrowing costs.
"Some participants assessed that the Committee’s policy stance would be restrictive even after a potential 0.25 percentage point reduction in the policy rate at this meeting. By contrast, some participants pointed to the resilience of economic activity, supportive financial conditions, or estimates of short-term real interest rates as indicating that the stance of monetary policy was not clearly restrictive," the minutes said.
The Fed last month lowered the federal funds rate for a second time this year to a range of 3.75-4%, with dissents in both directions. The Fed also announced it would be ending its QT bond runoff program starting in December.
