Fed officials were sharply divided over September rate cut

Business
Jerome Powell

FILE – In this Oct. 4, 2019, file photo Federal Reserve Chairman Jerome Powell attends a panel at the Federal Reserve Board Building in Washington. On Wednesday, Oct. 9, the Federal Reserve releases minutes from its September meeting when it cut interest rates for a second time this year. (AP Photo/Jacquelyn Martin, File)

WASHINGTON (AP) — Federal Reserve officials were sharply divided last month when they decided to cut their key policy rate for a second time this year, a split that indicates the path forward for future rate cuts remains cloudy.

Minutes of the discussion at the September meeting released Wednesday showed that the majority of Fed officials believed a second quarter-point cut was appropriate given increased economic uncertainty from trade tensions and a slowing global economy.

However, a “couple” of participants indicated they favored a half-point reduction. They said the larger rate cut would reduce the risks of a possible recession.

But a third group of “several participants” argued that the Fed should not be cutting rates at all, saying that the current outlook for the economy had changed little since the central bank’s last meeting.

This rare three-way split on the Fed’s top policy panel indicates that Fed Chairman Jerome Powell may face challenges in reaching consensus on future moves on rates.

Many investors are hoping the Fed will cut rates for a third time this year when it meets again at the end of this month. The Fed’s benchmark rate currently stands in a range of 1.75% to 2% with the next meeting coming on Oct. 29-30.

The CME Group, which tracks futures trading on the Fed’s policy rate, is currently putting the chance of a third cut in October at around 84%.

Chris Rupkey, chief financial economist at MUFG, a global financial group, said, “We would bet that Powell will deliver the third rate cut the markets are clamoring for on Oct. 30 but rate cuts beyond this … start to look less like the insurance style cuts” that Powell has referred to.

Michael Pearce, senior U.S. economist at Capital Economics, said he found the minutes “noticeably ambivalent” about the timing of the next cut. He said many Fed officials may be nearing the limits of how far they are comfortable cutting rates in the face of trade uncertainty and would prefer to “wait instead for more concrete signs of weakness in the incoming data.”

The September rate cut, which followed a cut in July that was the first in a decade, was approved on a 7-3 vote. Two Fed officials, Esther George, president of the Fed’s Kansas City regional bank, and Eric Rosengren, president of the Boston bank, dissenting in favor of no cut.

James Bullard, president of the St. Louis regional bank, dissented in the other direction, arguing that the threats to the economy were large enough that a bigger cut was needed.

The minutes however showed that there were other Fed officials who disagreed over the quarter-point rate cut although not strongly enough to dissent.

Following custom, the Fed does not name the Fed officials cited in the minutes, which were released after the customary three-week delay following a meeting.

The minutes showed officials also discussed the turbulence in a short-term funding market called the repo market that occurred in the week the central bank was meeting.

In remarks this week, Powell has said the Fed will be taking moves to deal with this turbulence.

The minutes showed that among the options discussed would be to allow the Fed’s balance sheet to grow again. The Fed had been reducing its holdings that had surged to a peak of $4.5 trillion in the wake of the Great Recession as it engaged in several rounds of bond purchases aimed at lowering long-term rates and giving the economy a boost.

Those bond purchases were known as “quantitative easing.” Powell said that while various options were being weighed for providing more stability for the short-term funding markets, the effort should not be considered a new round of quantitative easing.

Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don't Miss

More Don't Miss

Trending Stories

Turkey Day Giveaway

Days

Hours

Minutes

Seconds

Recent Videos

41st annual Chamber of Horrors

Thumbnail for the video titled "41st annual Chamber of Horrors"

Dogs test speed in Agility Trial

Thumbnail for the video titled "Dogs test speed in Agility Trial"

Graham ISD receives much-needed help from GRMC

Thumbnail for the video titled "Graham ISD receives much-needed help from GRMC"

Burkburnett woman sentenced for child abandonment and endangerment

Thumbnail for the video titled "Burkburnett woman sentenced for child abandonment and endangerment"

WF man sentenced for theft of union funds

Thumbnail for the video titled "WF man sentenced for theft of union funds"

Local father who lost son to fatal car accident uses tragedy to educate others

Thumbnail for the video titled "Local father who lost son to fatal car accident uses tragedy to educate others"

Kamay Volunteer Fire Department hosts steak feed

Thumbnail for the video titled "Kamay Volunteer Fire Department hosts steak feed"

Buddy Walk for Down Syndrome awareness

Thumbnail for the video titled "Buddy Walk for Down Syndrome awareness"

Mom builds Halloween display for terminally ill son

Thumbnail for the video titled "Mom builds Halloween display for terminally ill son"

Duncan School Threat

Thumbnail for the video titled "Duncan School Threat"

Sikes Senter Mall robbery

Thumbnail for the video titled "Sikes Senter Mall robbery"

Horses help inmates struggling with anger and anxiety

Thumbnail for the video titled "Horses help inmates struggling with anger and anxiety"
Get FREE Text Alerts
Report It

Latest News

More Local News