Minutes: “Most believe a hold in December is appropriate”
Divided views between employment slowdown and inflation risks
The minutes released from the Federal Open Market Committee (FOMC) show significant disagreement among committee members during the process of the U.S. central bank, the Federal Reserve (Fed), lowering the base interest rate in October. The minutes, released on the 19th (local time), highlighted differing interpretations regarding what poses a greater economic risk between a slowing labor market and persistent inflation, indicating uncertainty about future policy directions.
During the October meeting, the FOMC decided to cut the federal funds rate by 0.25 percentage points to a range of 3.75% to 4%. However, the minutes suggest a skeptical view of further cuts in December. The minutes note that while “many” participants considered keeping rates steady for the remainder of the year appropriate, only “several” left open the possibility of a December reduction.
This sentiment aligns with remarks made by Fed Chair Jerome Powell during a press conference following the meeting, where he stated, “A December rate cut is not a foregone conclusion.” According to FedWatch, a previous market consensus for a December cut has diminished to 29.6% as of now.
The minutes revealed divided evaluations between the signs of a slowing labor market and inflation that shows little sign of consistently returning to a 2% target.
There was also a split in opinion on how “restrictive” the policy stance is for the economy. Some committee members viewed that “despite this cut, the tightness still burdens growth,” while others assessed that “the robustness of economic activities signals that the policy is not sufficiently restrictive.”
Committee members’ tendencies were also notably distinct. Governors classified as doves, such as Steven Murphy, Christopher Waller, and Michelle Bowman, emphasized the need for cuts due to concerns about labor market weaknesses. On the other hand, regional Fed presidents like Jeffrey Schmid (Kansas City), Susan Collins (Boston), and Alberto Musalem (St. Louis) worried that additional cuts could hinder achieving the inflation target. Powell, along with Vice Chair Philip Jefferson and New York Fed President John Williams, are reportedly taking a cautious approach.
Additionally, the minutes noted that uncertainty in policy decisions was heightened due to a 44-day shutdown of key economic data releases caused by government shutdowns. Chair Powell likened it to “driving through fog,” but Governor Waller recently offered a different interpretation, stating, “There is sufficient information for policy judgment.”
The minutes also confirmed the Fed’s agreement to halt the reduction of its holdings of government bonds and mortgage-backed securities (QT) starting in December. Although the Fed’s balance sheet reduced by over $2.5 trillion during the previous tightening phase, it still stands at approximately $6.6 trillion. The cessation of QT received broad support among the committee members.
New York Correspondent Park Sin-young, [email protected]