Fed Minutes Show 'Substantial Majority' Of Policymakers Favored Rate Cut In September

(RTTNews) - A "substantial majority" of Fed policymakers supported an interest rate cut in September as they assessed that risks to the employment and inflation goals were almost in balance, the minutes of the latest rate-setting session showed on Wednesday.

"Given the significant progress made since the Committee first set its target range for the federal funds rate at 5-1/4 to 5-1/2 percent, a substantial majority of participants supported lowering the target range for the federal funds rate by 50 basis points to 4-3/4 to 5 percent," the minutes of the September 17-18 Federal Open Market Committee session, led by Fed Chair Jerome Powell, said.

Policymakers who favored the reduction observed that "such a recalibration of the stance of monetary policy would begin to bring it into better alignment with recent indicators of inflation and the labor market," the minutes said.

The Fed was widely expected to cut rates for the first time since March 2020, but markets and observers were debating the size of the reduction, if it would be 25 or 50 basis points.

The minutes also revealed that some participants saw "a plausible case for a 25 basis point rate cut at the previous meeting" and that data since then provided further evidence of inflation being on a sustainable retreat to the 2 percent target and a continued cooling in the labor market.

Meanwhile, some rate-setters said they would have preferred a 25 basis point reduction in September, given that inflation was still elevated, and economic growth remained solid and unemployment low. A few others indicated that they could have supported such a reduction, the minutes said.

FOMC members also observed that "it would likely be appropriate to move toward a more neutral stance of policy over time" if the economic data came in about as expected.

That said, policymakers stressed the need to communicate that the rate cut in September "should not be interpreted as evidence of a less favorable economic outlook" or "as a signal that the pace of policy easing would be more rapid" than currently expected.

They also emphasized the importance of communicating that the policy decisions are conditional on the evolution of the economy and "not on a preset course".

Policymaker Michelle Bowman voted against the decision to lower the federal funds target rate by 50 basis points, instead she preferred a 25 basis points cut. She was the first Fed governor to dissent since 2005.

"The recent upward revisions to GDP and gross domestic income, and the September employment report, reduce the downside risks to the economy, suggesting the Fed will likely cut rates by 25bps at each of its two remaining meetings this year," Oxford Economics economist Ryan Sweet said.

"The risks, however, are shifting toward fewer rate cuts in our baseline for next year, currently 100bps, as the Fed could pause longer to assess the impact of front-loading rate cuts in this normalization cycle," the economist added.