October 11, 2019
It wasn’t quite a joining of hands and singing “Kumbaya” at last month’s meeting of the Federal Open Market Committee. The Federal Reserve panel that sets the country’s monetary policy was divided on the question of how much the federal funds rate should be cut, if at all.
The 7-3 vote to lower the rate by a quarter point was finalized only after some FOMC members argued either for a half-point cut or, in the case of Kansas City Fed president Esther George and Boston Fed president Eric Rosengren, maintaining the status quo. Although the minutes of the group’s meetings don’t reveal who said what, the mid-September meeting appeared to be marked by disagreements and debate.
“Participants favoring a modest adjustment to the stance of monetary policy at this juncture cited other risks to the economic outlook that further underscored the case for such a move,” according to the Sep. 17-18 minutes, released on Oct. 9.
“As their discussion of risks had highlighted, downside risks had become more pronounced since July: Trade uncertainty had increased, prospects for global growth had become more fragile, and various inter-meeting developments had intensified geopolitical risks,” according to the minutes.
The “modest adjustment,” i.e. a quarter-point rate cut, prevailed. Conversely, though, “A couple of participants indicated their preference for a 50-basis point cut in the federal funds rate at this meeting,” the minutes revealed.
These participants, according to the minutes, maintained that “a larger policy move would help reduce the risk of an economic downturn and would more appropriately recognize important recent developments, such as slowing job gains, weakening investment, and continued low values of market-based measures of inflation compensation.” In the end, though, only St. Louis Fed president James Bullard felt strongly enough to dissent in this direction.
The view in favor of keeping the current rate in place was apparently expressed by “several participants” in September’s meeting. “These participants suggested that the baseline projection for the economy had changed very little since the Committee’s previous meeting, and that the state of the economy and the economic outlook did not justify a shift away from the current policy stance, which they felt was already adequately accommodative,” the minutes reported.
The participants favoring the status quo “acknowledged the uncertainties that currently figured importantly in evaluations of the economic outlook, but they contended that the key uncertainties were unlikely to be resolved soon. Furthermore, as they did not believe that these uncertainties would derail the expansion, they did not see further policy accommodation as needed at this time.”
The next FOMC meeting is scheduled for the end of this month, and it’s not certain that the Fed will cut rates for the third time at the Oct. 29-30 meeting. Michael Pearce, senior U.S. economist at Capital Economics, told the Associated Press that he found the minutes “noticeably ambivalent” about the timing of the next cut. He said many Fed officials may be nearing the limits of how far they are comfortable cutting rates in the face of trade uncertainty, and would prefer to “wait instead for more concrete signs of weakness in the incoming data.”
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