Fed’s September minutes could show whether 50 bps rate cut was slam dunk or hard sell By Reuters

By Howard Schneider

(Reuters) – Minutes of the U.S. Federal Reserve’s half-percentage-point interest rate cut last month, to be released on Wednesday, could provide a final word on how divided policymakers were over a decision which took many economists by surprise and sparked the first dissent by a member of the Board of Governors in 19 years.

Fed Chairman Jerome Powell, in his post-meeting press conference, said there was “broad support” for the half-point cut, with even dissident Governor Michelle Bowman agreeing it was time to ease monetary policy but preferring to start with a discount of less than a quarter of a point. as an inflation hedge, she is not convinced that it has been fully tamed.

However, Powell also acknowledged a “good variety of excellent talk” about the decision, while the predictions issued by Fed policymakers about what would happen in just the next three months were unusual of dispersed.

In anonymized rate cut forecasts issued at the September meeting, policymakers saw rates falling anywhere between 0 and 0.75 basis points by the end of the year. That’s a gap equal to the Fed’s September 2022 projections, when officials were still in the midst of raising rates and debating how far they should go to tame inflation, but before that it hadn’t been seen since September 2016.

The three-month time horizon in the Fed’s September outlook to the end of the current year is the shortest in the central bank’s Quarterly Summary of Economic Projections.

The minutes, to be released at 2 p.m. EDT (1800 GMT), provide a detailed account of the back-and-forth between policymakers and staff during each of the two-day meeting. They contain sections on the economic and financial outlook, as well as a presentation of officials’ views on appropriate monetary policy and the risks facing the economy.

Although it’s a retrospective document, usually issued three weeks after each Fed meeting, it can also better frame for the public and investors the spread of opinion around each policy vote. In doing so, it can provide clues as to how the Fed might react to incoming economic data.

The minutes “could shine a light on the bar for officials to cut policy rates at a faster pace,” economists at Citi wrote on Monday.

Investors currently expect the Fed to cut its benchmark rate by another quarter point at its Nov. 6-7 meeting and then again in December.

The document may also provide a better idea of ​​whether the half-point cut was a hard sell for its supporters or not. While there was only one dissent, it does not speak to how the 7 non-voting participants at the meeting, the presidents of some of the regional reserve banks who rotate in and out of voting positions year after year, felt about the move or about how voters saw their options.

In an interview last week, Richmond Fed President Thomas Barkin, who has a vote this year and backed the halfway point, said he was also open to a lower rate cut and didn’t see much macroeconomic difference between the two. He noted that starting with a higher rate cut was consistent with the policy paths outlined by nearly all 19 Fed officials.

Nine officials, for example, expected cuts of four-quarters of a point for all of 2024 to be adequate, while another seven estimated just three.

“It was a big tent,” Barkin said. “If you were going to get somewhere in that range … it was reasonable to do 50. It also would have been reasonable to do 25. I felt perfectly comfortable voting for 50.”

From there, Powell and other officials noted, the Fed can adjust the pace and extent of cuts based on how the economy and inflation fare.

A jobs report on Friday reinforced investors’ views that the Fed will cut by a quarter point at its Nov. 6-7 meeting after payrolls rose more than expected, the jobless rate fell and growth wages by 4% remained above what policy makers see. in line with their 2% inflation target.

New inflation data due on Thursday will be the latest key data point in the debate, with policymakers generally open to continued rate cuts as long as there is evidence that price pressures continue to ease.