ISTANBUL
The minutes of the last meeting of the US Federal Reserve that were released Wednesday showed that officials could not agree on whether a stagnant labor market or persistent inflation posed greater economic risks, and also on the interest rate path.
Even if a reduction was agreed by the Federal Open Market Committee (FOMC) at the October meeting, less creation appears to be the way forward.
Disagreements continued into December's forecast, with officials voicing doubts about the necessity of a further cut that the markets had been eagerly awaiting, with "many" stating that no further cuts are required at least until the end of the year.
“Several participants assessed that a further lowering of the target range for the federal funds rate could well be appropriate in December if the economy evolved about as they expected over the coming intermeeting period,” the minutes noted.
“Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year.”
After Fed's decision to cut the policy rate in the last meeting, Powell told reporters that a December cut was not a “foregone conclusion.”
Previous to Powell’s statement, traders were nearly certain of another rate cut in December. However, that possibility was reduced to a little over a 1 in 3 chance on Wednesday, according to CME Fedwatch.
On the other hand, the minutes noted that “most participants” saw further cuts likely in the future, though not necessarily in December.
The FOMC decided on a 25 basis point cut in the policy rate to a range of 3.75%-4% in its October meeting. However, the 10-2 vote did not fully reflect the degree of division among the officials.
A slowing job market and inflation that has "shown little sign of returning sustainably" to the Fed's 2% objective were the main concerns expressed by officials, according to the minutes.
“Against this backdrop, many participants were in favor of lowering the target range for the federal funds rate at this meeting, some supported such a decision but could have also supported maintaining the level of the target range, and several were against lowering the target range.”
The argument on how "restrictive" the existing strategy is for the economy was at the center of the discussion. While some participants believed that the policy was still impeding growth after the quarter-point drop, others observed that "the resilience of economic activity" demonstrated that the policy was not restrictive.
The minutes noted that “one participant,” Stephen Miran, preferred a half-point cut. Jeffrey Schmid also voted against the 25 basis point rate cut, instead preferring not to cut at all.
Minutes also said that during the 43-day government shutdown, a lack of government data made decision-making more difficult. During the shutdown, reports on the job market, inflation, and several other measures were not gathered or made public.
Schedules for some of the releases, but not all of them, have been made public by government organizations including the Bureau of Labor Statistics and the Bureau of Economic Analysis.
The minutes also discussed the balance sheet aspect of policy. The FOMC agreed to stop the reduction of Treasury and mortgage-backed securities in December, a process that has shaved more than $2.5 trillion off the balance sheet, which is still around $6.6 trillion. There appeared to be widespread approval for the halting of a process known as quantitative tightening.