Minutes from the U.S. Federal Reserve’s decision to cut rates by half a percentage point, due out on Wednesday, are expected to show how divided its policymakers were over a decision that caught many economists off guard and resulted in the first dissent from a Board of Governors member in 19 years.
Fed Chairman Jerome Powell said during the post meeting news conference there was “broad support” for the half point cut. Among the notable dissents, Governor Michelle Bowman supported the need to loosen monetary policy but favored a more cautious quarter point cut, warning that inflationary risks may not have been fully contained.
Powell also made note of the “good diversity of excellent discussion” surrounding the decision, and the projections Fed policymakers submitted for how the economy may evolve over the coming three months showed a rare degree of dispersion.
In the anonymous projections released in the September meeting, policymakers expected rates could fall as little as 0 or as much as 0.75 basis points by the end of the year. The spread was similar to that seen in Fed projections last September, when officials were still raising rates and debating what would be sufficient to curb inflation. But it was the widest since September 2016.
The Fed’s three-month forecast in its September summary is the shortest on record in the central bank’s Quarterly Summary of Economic Projections. The minutes, scheduled for release at 2 pm EDT (1800 GMT), will give a blow by blow account of the deliberations among policymakers and staff during the course of each two day meeting, including views on the economic and financial outlook and officials’ assessments of appropriate monetary policy and the risks facing the economy.
This is a retrospective document, issued three weeks after every meeting of the Federal Reserve; it does, nonetheless, give the public and the investors a better overview of the views that existed for every policy decision. In this context, what to expect from coming economic data may hint at how the Federal Reserve is going to react.
Economists at Citi said Monday that the minutes “may shed some light on the threshold for officials to cut policy rates by more.” Currently, investors expect the Federal Reserve to cut the benchmark rate by another quarter point at the Nov. 6-7 meeting, with another cut in December.
The minutes may also indicate if the half-point cut had been a contentious proposal among its proponents. There was only one vote against it, but this does not indicate the feelings of the seven non voting members who were present during the deliberation, comprising the presidents of some regional reserve banks which vote in rotation every year, and also does not tell how the voting members felt about the options available.
Richmond Fed President Thomas Barkin, a voter this year who supported the half point cut, said in an interview that he was open to the smaller cut, adding he didn’t “see much difference from a macro viewpoint” between the two options. He said starting with the bigger cut was consistent with the policy paths sketched out by nearly all 19 Fed officials.
For example, nine officials expected that four quarter-point cuts over 2024 would be appropriate, while seven others expected just three. “It was a big tent,” Barkin said. “If you were going to end up somewhere in that range. it was reasonable to do 50. It also would have been reasonable to do 25. I was perfectly comfortable voting for 50.”
Going forward, Powell and other officials have made it clear that the Federal Reserve can adjust the pace and magnitude of the rate cuts based on evolving economic conditions and inflation trends.
A jobs report on Friday cemented forecasts from investors that the Federal Reserve will move forward with a quarter point cut at its Nov. 6-7 meeting. That forecast comes as the overall increase in payroll employment came in stronger than expected, while the unemployment rate fell and wages rose 4% above the level that policymakers view as consistent with their 2% target for inflation.
Thursday’s forthcoming set of inflation data will be a key guide in the continuing debate, with members generally disposed toward further rate cuts, if it is clear that inflationary pressures are abating.
