Federal Reserve officials agreed at their recent policy meeting that risks to the U.S. job market had increased enough to warrant an interest rate cut, but remained wary of high inflation amid a debate about how much borrowing costs were weighing on the economy, minutes of the September 16-17 session showed on Wednesday.
"Most participants observed that it was appropriate to move the target range for the federal funds rate toward a more neutral setting because they judged that downside risks to employment had increased," said the minutes, which captured the emerging discussion between Fed officials most concerned about protecting the labor market and relatively unconcerned now about inflation, including new Governor Stephen Miran, and those who see signs of inflation remaining persistently above the U.S. central bank's 2% target.
Yet at the same time "a majority of participants emphasized upside risks to their outlooks for inflation, pointing to inflation readings moving further from 2%, continued uncertainty about the effects of tariffs," and other factors, the minutes said.
The result was that while "most judged that it likely would be appropriate to ease policy further over the remainder of this year," the timing and pace of further moves remained in question within the Fed's divided policy-setting committee.
"Some participants noted that, by several measures ... monetary policy may not be particularly restrictive, which they judged as warranting a cautious approach" toward further rate cuts, the minutes said.
"A few participants" said there was "merit" in keeping the policy rate steady, while at the other end of the spectrum "one" of them advocated a larger half-percentage-point cut.
Miran, who is on leave from his job as a top White House economic adviser, dissented in favor of a larger half-percentage-point cut, with more to follow at upcoming meetings.
"There's a lot of squawking and squabbling at the Fed. Where they stand depends on whether they fear the risk they know, a slowing labor market, or the risk they don't know, the possibility of inflation expectations moving higher," said Brian Jacobsen, chief economist at Annex Wealth Management. "The risks to growth are growing while the risks to inflation are the same as they were or falling. If September's cut was a risk-management cut, it would be hard to argue they shouldn't cut again in October."
Source: Reuters