The latest released meeting minutes revealed that there was actually quite a divergence within the Fed on the decision to cut interest rates by 50 basis points. Economists' comments on this: The Fed's attitude is much more cautious than previously thought by the market and not eager to cut interest rates.
Caixin Media, October 10th (Editor: Huang Junzhi) Although the Fed launched a loosening cycle last month with a "radical reduction" of 50 basis points, the latest meeting minutes revealed that there was still quite a divergence within the Fed on this decision.
The meeting minutes indicate that the vast majority of attendees agreed to reduce the federal funds rate by 50 basis points, while some attendees suggested that a 25 basis point cut would be a better choice. Furthermore, some attendees who publicly supported the 50 basis point rate cut also revealed that they could have supported a 25 basis point reduction.
The meeting minutes also showed that some officials had hoped for a rate cut in July, which was one factor in their support for a 50 basis point reduction.
Economists' comments on this: The Fed's attitude is much more cautious than previously thought by the market and not eager to cut interest rates. In the future, the Fed is expected to gradually loosen its monetary policy.
"The Fed is not currently eager to cut interest rates," said Oliver Allen, senior U.S. analyst at Pantheon Macroeconomics. However, at the same time, he believes that the Fed does not realize how severe the economic challenges are.
"Central banks should take more urgent action to avoid a sharp slowdown in the economy around the end of the year," he added.
Chief U.S. economist at Oxford Economics, Ryan Sweet, said that the meeting minutes increased the risk that the rate cut in 2025 could be less than he expected. He originally expected the Fed to cut rates by 25 basis points at the last two meetings of this year, followed by four 25 basis point rate cuts next year.
However, after the Federal Reserve released the minutes of the meeting, Sweet stated in a recent report that by 2025, "the Federal Reserve may pause action for a longer period to assess the impact of the early rate cuts in this normalization cycle."
Recently, Federal Reserve officials have repeatedly emphasized that a 50 basis point rate cut does not mean that the pace of policy easing will be faster than the Federal Reserve's own forecasts. Moreover, it is not a response to deteriorating economic prospects. Some Federal Reserve officials also stated that gradual rate cuts are appropriate considering all uncertainties about the economic outlook.
Dallas Federal Reserve President Logan stated on Wednesday that further easing of the financial environment could stimulate spending and drive demand beyond supply, this risk suggests that the Federal Reserve should not rush to lower the federal funds target rate to a "normal" or "neutral" level.
Logan said that the Federal Reserve "should gradually proceed with rate cuts while monitoring financial conditions, consumption, wages, and price trends." The difficulty in determining the neutral rate is another reason Logan advocates for gradual rate cuts. The neutral rate refers to the level of interest rates that neither stimulates nor hinders economic growth.
Kathy Bostjancic, Chief Economist at insurance and financial services company Nationwide, said, "We expect the Federal Reserve to continue to lower the federal funds rate in the coming months, but the magnitude will be smaller, at 25 basis points."
David Rogal, Chief Portfolio Manager of BlackRock Total Return Fund, said, "It is difficult to say how much easing policy there will be this year. The differing views expressed in the meeting minutes add to this uncertainty."
Rogal added that his basic forecast is for another 25 basis point rate cut twice, but it is also possible that the Federal Reserve may decide not to cut rates in November or December.