Minutes from the Fed’s meeting, due to be released early Thursday morning Beijing time, may finally reveal how divided policymakers were over a decision that surprised many economists. The Fed cut interest rates by 50 basis points last month, with one governor dissenting for the first time in 19 years.
Fed Chairman Powell said at a press conference after the meeting that there was "broad support" for a 50 basis point rate cut. Even dissenting board member Bowman agreed that it was time to ease monetary policy, but she preferred a smaller 25 basis point rate cut first to guard against inflation risks that she believed had not yet fully subsided.
However, Powell also acknowledged that the "discussion" surrounding the decision was "very diverse," and that Fed policymakers' predictions for what would happen over the next three months were unusually scattered.
In the dot plot released by the Fed at its September meeting, policymakers projected a further drop in rates by 0 to 75 basis points by year-end. The divergence matches the Fed’s September 2022 forecast, when officials were still raising rates and debating how much more they needed to keep inflation in check. But the divergence had never been seen before then, and it didn’t reappear until September 2016.
Fed minutes detail the back-and-forth between policymakers and staff at each of the two-day meetings. They include sections on the economic and financial outlook, officials’ views on appropriate monetary policy and the risks they see facing the economy.
While the document comes out with a lag, typically three weeks after each Fed meeting, it also better illuminates for the public and investors the divisions in each policy vote. Doing so may also provide clues to how the Fed will respond to upcoming economic data.
The minutes “could reveal officials’ threshold for faster policy rate cuts,” Citigroup economists wrote on Monday.
Investors currently expect the Fed to cut its benchmark interest rate by another 25 basis points at its Nov. 6-7 meeting and another 25 basis point cut in December.
The document may also provide more clarity on whether a 50 basis point rate cut was a tough call for its backers. While only one member dissented, it does not tell much about how the seven non-voting participants at the meeting felt about the move, or how voters viewed their options.
Barkin, this year's voting member and president of the Richmond Fed, said in an interview last week that he supports a 50 basis point rate cut, but he is also open to a smaller rate cut and does not see a big difference in the macroeconomics between the two rate cuts. He pointed out that starting with a larger rate cut is consistent with the policy path proposed by almost all 19 Fed officials.
For example, nine officials expected four 25 basis point rate cuts would be appropriate throughout 2024, while another seven expected just three.
“If you’re ultimately going to cut rates within this range ... it’s reasonable to do a 50 basis point cut. It’s reasonable to do a 25 basis point cut. I’m perfectly fine with voting for a 50 basis point cut,” Barkin said.
Powell and other officials have noted that the Fed can adjust the pace and magnitude of rate cuts depending on how the economy and inflation evolve.
Investors’ views that the Fed will scale back its rate cuts to a quarter point at its Nov. 6-7 meeting were reinforced by Friday’s jobs report, which showed nonfarm payrolls rose more than expected and the unemployment rate fell, while wage growth, at 4%, remained above a level policymakers consider consistent with their 2% inflation target.
The latest inflation data, due on Thursday, will be the latest key data point in the debate, with policymakers generally willing to keep cutting rates as long as there is evidence that price pressures continue to ease.
The article is forwarded from: Jinshi Data
