Late in the night of October 10, the Federal Reserve, which controls the world's money bag, quietly released a record of their internal chat. This record is like a wonderful debate, telling why they suddenly decided to "flood the market" in September, that is, to cut interest rates by 50 basis points. At the same time, they also had a heated discussion on the future direction of monetary policy.
First, most of the officials participating in the debate agreed to give the economy a "big pill", that is, a 50 basis point interest rate cut. However, some "conservative" officials felt that half a "small pill" (a 25 basis point interest rate cut) would be enough, and several officials were even ready to raise their hands to support half a pill.
Officials who support taking the "power pill" believe that taking the whole "power pill" at once can make the two little partners, the economy and inflation, work better together, which can not only cool down inflation but also maintain the strong momentum of employment and economy.
Officials who think that taking half a pill is enough stressed that taking a whole pill at once is too drastic and does not conform to their "health regimen" of slowly adjusting the policy interest rate. Moreover, although the current economic data supports a rate cut, it is not yet so exaggerated that a whole pill is needed.
Several other officials feel that with steady economic growth and low employment, taking half a pill is enough to allow monetary policy to slowly return to normal while giving the Fed more time to observe economic progress. They also say that such a steady pace will make the direction of monetary policy more clear and predictable, just like checking the weather forecast.
However, there is another point of disagreement in this debate, that is, the degree of tightening policy. Some officials stressed that even if they cut interest rates, they may continue to "tighten" the money supply in the market.
This means that there was actually no consensus within the Federal Reserve on the 50 basis point interest rate cut in September. It was like a heated debate.
So, what about the future interest rate cut path that everyone is concerned about? This record also gives the answer. If inflation continues to fall toward the Fed's 2% target and employment continues to expand, then a more neutral stance may be taken in the future, just like standing in the middle and looking at both sides.
Moreover, the Federal Reserve has made it clear that their monetary policy decisions do not have a fixed path and depend entirely on economic development, the impact of the economic outlook, and the balance of risks between employment and inflation.
When discussing the outlook for monetary policy, Fed policymakers also specifically emphasized that the 50 basis point rate cut in September was not because they felt the economic outlook was not good, but was a decision made based on the development and changes in the economic situation, the impact on the economic outlook, and the balance of risks in employment and inflation.
When it comes to the economic outlook, Fed officials at their September meeting predicted that the U.S. economy will remain solid, like a thriving tree. While their forecast for real GDP growth is about the same as in July, the unemployment rate is a bit higher than expected in July.
As for the inflation outlook? Almost all officials said that their confidence in inflation continuing to move closer to 2% has increased, just like seeing their children grow up little by little.
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