Future Rate Cuts in Question After Fed Minutes Show Deep Division

  • Future Rate Cuts in Question After Fed Minutes Show Deep Division

Future Rate Cuts in Question After Fed Minutes Show Deep Division

US Federal Reserve chairman Jerome Powell flagged openness to further rate cuts to fend off global economic risks, repeating that the central bank will act "as appropriate" amid an economy that he said is likely to continue to expand.

Several noted that models gauging recession probabilities had "increased notably in recent months".

They said uncertainty from tariffs could begin to ripple through to hiring and consumer spending, meeting minutes out Wednesday afternoon showed. However, the Fed remains optimistic about American consumers with strong household spending in the United States. FOMC participants deliberated the appropriate time to end the recent string of rate cuts as some argued that further easing could better insulate the American economy from elevated risks - primarily due to weakness overseas - whereas others debated that the Fed could be taking out too much insurance against future downturns.

Senior Fed officials have not expressly pushed back against those expectations in recent public comments. Three officials dissented from last month's decision, with two preferring no action and one preferring a larger, half-point cut.

At its September meeting, Federal Reserve officials began debating how far their current interest-rate cutting campaign should extend, even as they agreed to lower rates in response to growing risks to the USA economy. The US Dollar was little changed immediately following the FOMC minutes release with spot USD/JPY - a particularly interest rate sensitive USD currency pair - holding onto earlier gains and trading near intraday highs.

While "the economy faces some risks, overall, it is - as I like to say - in a good place, " he said in the text of remarks to be delivered to a "Fed Listens" event in Kansas City on Wednesday.

"Clearly things are slowing a bit", he said, noting that it is normal for long expansions to have such periods.

The minutes also showed sharp divisions among members about the future path of policy, along with some worry that a market clamoring for easier monetary might be getting ahead of itself.

Meantime, steady job growth was set against the backdrop of recent revisions to hiring in 2018 that showed a slower expansion that previously reported. After the minutes, markets continued to expect an 82% chance of a rate cut at the October 30 meeting.

Because of the potential misunderstanding, "it might become necessary for the Committee to see a better alignment of market expectations regarding the policy rate path with policymakers' own expectations for that path", the minutes said.

As a result, some of these officials wanted the Fed to provide more specificity about when it might be done cutting interest rates in response to rising trade policy uncertainty, the minutes said. "I'm not sure. But I'm certainly open minded to those arguments", said Mr Evans, who supported both Fed rate cuts this year to help the Fed faster achieve its 2 per cent inflation goal.