A significant majority of Federal Reserve policymakers showed support for a reduction in interest rates during September, as they considered that the risks concerning the employment and inflation objectives were nearly balanced, according to the minutes from the recent rate-setting meeting revealed on Wednesday.
The minutes from the Federal Open Market Committee session, held on September 17-18 and led by Fed Chair Jerome Powell, stated, "In light of the significant advancements since the Committee initially set the target range for the federal funds rate at 5.25% to 5.5%, a substantial majority backed lowering the target range by 50 basis points to 4.75% to 5%."
Policymakers who favored this adjustment noted that "recalibrating the monetary policy stance would help achieve better alignment with recent indicators concerning inflation and the labor market," the minutes indicated.
The Federal Reserve had been widely anticipated to cut rates for the first time since March 2020, but there was a debate among market participants and observers regarding whether the cut would be by 25 or 50 basis points.
The minutes further disclosed that some participants perceived "a reasonable case for a 25 basis point rate reduction at the previous meeting," and subsequent data offered additional proof that inflation was on a sustainable decline towards the 2% target, with the labor market showing continuous cooling.
However, some rate-setters suggested they would have preferred a 25 basis point reduction in September due to ongoing elevated inflation, steady economic growth, and low unemployment. A few others mentioned they could have backed such a reduction, the minutes reported.
FOMC members also noted it might be suitable to move towards a more neutral policy stance over time if economic data evolved as anticipated.
Nonetheless, policymakers emphasized the importance of conveying that the September rate cut "should not be seen as an indicator of a less favorable economic forecast" or "as a sign that policy easing would proceed more rapidly than currently anticipated."
They also underlined the necessity of communicating that policy decisions are contingent on economic developments and "not on a predetermined path."
Policymaker Michelle Bowman cast a dissenting vote against the decision to lower the federal funds target rate by 50 basis points, preferring instead a 25 basis point cut. She was the first Fed governor to dissent since 2005.
Oxford Economics economist Ryan Sweet commented, "The recent upward revisions to GDP and gross domestic income, along with the September employment report, lessen the downside risks to the economy, suggesting the Fed will likely cut rates by 25 basis points at each of its remaining two meetings this year."
"The risks, however, are shifting toward fewer rate cuts in our baseline for the next year, currently at 100 basis points, as the Fed could take a longer pause to assess the impact of front-loading rate cuts in this normalization cycle," the economist added.