The US Federal Reserve’s rate-setting committee was divided during interest rate deliberations last month, although most members ultimately voted for a half percentage-point cut, according to minutes of the meeting published Wednesday.
Policymakers voted 11-to-1 in favor of the larger cut to boost demand and bolster the labor market amid signs inflation was falling toward the bank’s long-term two percent target, with Fed governor Michelle Bowman the only voting member of the committee to publicly back a smaller cut.
But behind the scenes, the full committee — which includes seven non-voting members — was more reluctant to back a 50 basis point cut during the deliberations than the initial decision published on September 18 suggested, according to minutes of the meeting.
While a “substantial majority” ultimately supported the 50 basis point cut, some participants “noted that there had been a plausible case for a 25 basis point rate cut at the previous meeting,” according to the Fed minutes.
But despite not cutting over the summer, “some participants observed that they would have preferred a 25 basis point reduction of the target range at this meeting, and a few others indicated that they could have supported such a decision,” the Fed said.
One concern raised in the discussions was that a larger cut could be read as a signal the Fed was looking to make a series of bigger rate reductions going forward, when no such decision had been taken.
“Several participants noted that a 25 basis point reduction would be in line with a gradual path of policy normalization that would allow policymakers time to assess the degree of policy restrictiveness as the economy evolved,” the Fed said.
“A few participants also added that a 25 basis point move could signal a more predictable path of policy normalization,” it added.
But in the end, almost all voting members of the committee coalesced around a larger cut, bringing the Fed’s benchmark lending rate to between 4.75 and 5.00 percent.
Futures traders now see a roughly 80 percent chance that the Fed will move ahead with a 25 basis point cut at its next meeting in early November, according to CME Group data.
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