Minutes of latest Federal Reserve meeting reveal deep divide over interest rates | Federal Reserve
The US Federal Reserve agreed to cut interest rates at its December meeting only after a deeply nuanced discussion about the risks currently facing the US economy, according to minutes from the last two-day session.
Even some supporters of the rate cut acknowledged that “the decision was very well balanced, or they might support keeping the target range unchanged” given the different risks facing the U.S. economy, according to minutes released Tuesday.
In economic forecasts released after the Dec. 9-10 meeting, six officials publicly opposed the cut, and two of that group opposed it as voting members of the Federal Open Market Committee.
While “most respondents” ultimately supported the cut, “some” argued it was an appropriate strategy going forward that would “help stabilize the labor market” following the recent slowdown in job creation.
But others “expressed concern that progress towards the committee’s 2% inflation target has stalled.”
“Some participants suggested that, given their economic outlook, it would probably be appropriate to keep the target range constant for a period of time after reducing the range at this meeting,” the minutes said, about a discussion in which officials disagreed in favor of both tighter and looser monetary policy, an unusual outcome for the central bank in two consecutive meetings.
The quarter-point rate cut approved in December dropped the Fed’s benchmark overnight interest rate to a range of 3.5% to 3.75%; It was the central bank’s third consecutive move as officials acknowledged that a slowdown in monthly job creation and rising unemployment warranted slightly less restrictive monetary policy.
But as rates have fallen and approached a neutral level that neither discourages nor encourages investment and spending, views at the Fed have become more divided on how much more to cut. New forecasts released after the December meeting showed only one rate cut expected next year, while language in the new policy statement suggested the Fed would likely remain on hold for now until new data showed either inflation falling again or unemployment rising more than expected.
The lack of official data and the still incomplete knowledge gap during the 43-day government shutdown continued to shape the outlook and views of policymakers on how to manage risk.
Some of those who opposed or were skeptical of the latest rate cut “suggested that a significant amount of labor market and inflation data coming in the next meeting period would help decide whether a rate cut is necessary.”
Data capture continues, with employment and consumer price information for December returning to its normal release schedule on January 9 and 13.
The Fed’s next meeting is scheduled for January 27-28, and investors currently expect the central bank to keep its benchmark interest rate unchanged.
