Fed Minutes: FOMC Worried About Elevated Risks, but Officials Felt 3 Rate Cuts Could Be Enough

At this time, the consensus among economists is that the Fed will now pause after cutting rates three times in 2019, with its benchmark rate in a range of 1.5% to 1.75%.
James Hyerczyk
U.S. Federal Reserve

The U.S. Federal Reserve released the minutes from its October 30 monetary policy meeting at 19:00 GMT on Wednesday. At the meeting, Federal Open Market Committee (FOMC) members cut their benchmark rate for a third time this year.

There were some changes to the previous monetary policy statement, but the minutes contained no material surprises. Here are the highlights, courtesy of CNBC.

“Most” FOMC members saw the moves as enough “to support the outlook of moderate growth, a strong labor market, and inflation near the Committee’s symmetric 2 percent objective,” the meeting summary stated.

The stance of policy “likely would remain” where it is “as long as incoming information about the economy did not result in a material reassessment of the economic outlook,” the minutes stated.

Trade was also mentioned as a concern regarding global economic growth.

According to the minutes, Fed officials generally agreed that they likely won’t need to cut interest rates again after trimming their benchmark overnight lending rate a quarter-point to a range of 1.5%-1.75%, unless economic conditions change significantly.

“The Fed maintained, however, that policy isn’t on a pre-set course, even if it is likely to remain on hold, and members will continue to assess changes in data and the general outlook. Members often note that Fed policy adjustments work on a lag that can take a year or more to be felt, so they intend on watching how the switch to easier policy will impact financial conditions. The cuts started in July, just seven months after the committee approved the fourth rate hike of 2018,” CNBC observed.

Fed Sees Elevated Downside Risks

Chairman Jerome Powell, in congressional testimony last week, said the felt comfortable with the stance of policy, and FOMC members felt the U.S. economy was in a fairly strong position, with a healthy labor market and strong spending appetite among consumers, whose activity accounts for about 70% of GDP.

However, Powell and his colleagues also saw “downside risks surrounding the economic outlook as elevated, further underscoring the case for a rate cut” at the October meeting. They cited reduced business investment and exports resulting from “weakness in global growth and elevated uncertainty regarding trade developments.”

They also did note that concerns over both issues seem to have “eased somewhat.”

Lower Rates an Insurance Policy

FOMC members voting in favor of the rate cut also cited the benefits lower rates would provide as an insurance policy against future economic weakness. Members also continued to express concern about inflation that runs consistently below the Fed’s 2% target. Additionally, all but two committee members voted for the cut, with the dissents believing that no further accommodation was needed.

Market Reaction

There was little reaction in the financial markets after the release of the Fed minutes. This is because the Fed’s next move on interest rates, which is to pause on further rate cuts, had been clearly telegraphed in its policy statement. Furthermore, policymakers also made it clear that there was a low probability of a rate hike as well.

At this time, the consensus among economists is that the Fed will now pause after cutting rates three times in 2019, with its benchmark rate in a range of 1.5% to 1.75%.

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