The Federal Reserve released the minutes of its September meeting, providing information on the central bank's ongoing evaluation of the economy and monetary policy.
The minutes suggest that while a majority of Fed officials believe the risk of high inflation has receded, concerns remain about the potential impact of tapering policy restrictions too quickly.
Many participants warned that premature or excessive easing of monetary policy could stall or reverse progress in fighting inflation. The minutes noted that the U.S. economy remained “solid,” but growth forecasts for the second half of 2024 were revised downward due to weaker-than-expected labor force indicators.
The minutes also highlighted that some participants expressed uncertainty about the level of the long-term neutral interest rate, making it difficult to assess how much tightening would be appropriate. As a result, many participants agreed that a gradual reduction in policy restrictiveness would be the most prudent approach.
In terms of specific rate cuts, the minutes suggest that a 50 basis point cut would better align rates with the current economic environment. However, some participants suggested that a smaller 25 basis point cut would offer a more predictable path to normalizing rates. At the September meeting, all members ultimately supported the rate cut, with several officials indicating they would support a 25 basis point cut.
The July meeting was also referenced in the discussion, with some participants seeing a reasonable case for a 25 basis point cut. However, the majority favored a 50 basis point cut, underscoring a general consensus for more significant easing at the time.
In addition, the minutes included the following statements:
- Most respondents believed that the risks associated with poor employment conditions had increased.
- Some participants noted that premature or excessive reductions in policy restrictiveness could lead to stalling or reversal of progress in combating inflation.
- Most officials believe the risks of high inflation have receded.
- A smaller rate cut would provide more time to assess economic conditions.
- Participants generally stated that it is very important to make decisions based on economic developments and the impact of the risk balance, and therefore a fixed route should not be followed.
*This is not investment advice.