U.S. Federal Reserve Chair Jerome Powell at a press conference in September after the central bank's latest interest rate decision.Elizabeth Frantz/Reuters
Federal Reserve officials agreed at their recent policy meeting that risks to the U.S. job market had increased enough to warrant an interest rate cut, but many remained wary of high inflation amid a debate about how much current borrowing costs were weighing on the economy, minutes of the Sept. 16-17 session showed on Wednesday.
“Most participants observed that it was appropriate to move the target range for the federal funds rate toward a more neutral setting because they judged that downside risks to employment had increased,” said the minutes, which captured the emerging discussion between Fed officials most concerned about protecting the labour market and relatively unconcerned now about inflation, including new Governor Stephen Miran, and those who see signs of inflation remaining persistently above the U.S. central bank’s 2-per-cent target.
Federal Reserve Governor Stephen Miran was recently appointed to the central bank after Governor Adriana Kugler’s surprise resignation.Alexi J. Rosenfeld/Getty Images
Yet at the same time “a majority of participants emphasized upside risks to their outlooks for inflation, pointing to inflation readings moving further from 2 per cent, continued uncertainty about the effects of tariffs,” and other factors, the minutes said.
The result was that while “most judged that it likely would be appropriate to ease policy further over the remainder of this year,” the timing and pace of further moves remained in question in a divided Federal Open Market Committee.
“Some participants noted that, by several measures ... monetary policy may not be particularly restrictive, which they judged as warranting a cautious approach” toward further rate cuts, the minutes said.
“A few participants” said there was “merit” in keeping the policy rate steady, while at the other end of the spectrum “one” of them advocated a larger half-percentage-point cut.
Fed’s view of neutral, reshuffled by Miran, a key to inflation concerns
Miran, on leave from his job as a White House economic adviser, dissented in favor of a larger half-percentage-point cut, with more to follow at upcoming meetings.
The Fed cut its benchmark policy rate by a quarter of a percentage point in September to the 4.00 per cent-4.25 per cent range. New projections showed the median policymaker expected two more such cuts this year.
The projections, however, showed a nearly even split among the 19 participants at the meeting, with nine of them anticipating two cuts and Miran seeing many more, and the remaining nine seeing only one or no more cuts.
Investors have set their expectations for two cuts, but the minutes showed a textured debate over the risks facing the U.S. economy and over just how much restraint current policy is actually having on investment and spending.
Speaking to reporters after the end of last month’s meeting, Fed Chair Jerome Powell said monetary policy remained at a “clearly restrictive level,” though he remained noncommittal about further reductions in rates.
The Fed’s next policy meeting is slated for October 28-29, with another quarter-percentage-point rate cut anticipated by financial markets. The analysis and commentary since last month’s meeting, however, have been complicated by a federal government shutdown that has delayed release of the September jobs report and could postpone publication of the next round of consumer price data scheduled for next week.