Fed minutes show caution over inflation even as officials cut rates

[NEW YORK] US Federal Reserve officials showed a willingness to lower interest rates further this year, but many expressed caution driven by concerns over inflation at their policy gathering last month.

“Most judged that it likely would be appropriate to ease policy further over the remainder of this year,” according to minutes of the Federal Open Market Committee’s (FOMC) Sep 16 to 17 meeting. The record of the meeting also showed “a majority of participants emphasised upside risks to their outlooks for inflation”.

Officials at that gathering voted 11-1 to lower interest by a quarter percentage point to a range of 4 to 4.25 per cent, the first such cut this year. One official, the newly sworn-in Stephen Miran, favoured a half-point reduction and voted against the decision.

New projections released following the meeting showed officials expected two additional quarter-point cuts by year’s end, according to their median estimate. But they also pointed to division on the committee, as seven of the 19 participants projected no additional cuts in 2025.

In a note to clients, Stephen Stanley, chief US economist at Santander US Capital Markets, pointed to “significant differences of opinion within the committee regarding just about everything important”.

“We should not be surprised that there is a wide range of opinion within the FOMC on what to do next,” he said.

The minutes showed that a small number of officials were reluctant to support the Sep 17 rate cut.

“A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision,” the minutes said.

While policymakers noted that risks to the labour market had risen, many also felt a rapid drop in employment was unlikely.

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“Participants generally assessed that recent readings of these indicators did not show a sharp deterioration in labour market conditions,” the minutes said.

Job concerns

Since the September meeting, Fed governors, including vice-chairs Philip Jefferson and Michelle Bowman, have raised concerns about the strength of the labour market as a reason to lower interest rates.

Miran has argued that a lower than understood neutral rate of interest means the Fed needs to cut rates quickly.

US President Donald Trump and several administration officials have also pointed to recent data in their mounting calls for the Fed to lower rates immediately.

Federal funds futures contracts suggest investors see rate cuts likely in October and December.

Officials continued to say they would weigh risks both to inflation and employment as they considered their next move.

“Participants stressed the importance of taking a balanced approach in promoting the committee’s employment and inflation goals,” the minutes said.

The Fed held its meeting two weeks before the beginning of the ongoing government shutdown, which has frozen the release of key economic data. BLOOMBERG