The Federal Open Market Committee (FOMC) of the usa released the minutes of the monetary policy meeting from the 17th to the 18th of last month last night, showing that Federal Reserve officials have differing views on the economic outlook and the magnitude of interest rate cuts. After the release of the FOMC meeting minutes, the market also began to change its expectations for a rate cut in November, with a higher probability that there may be no rate cut in November.
The Federal Open Market Committee (FOMC) of the usa released the minutes of the monetary policy meeting from the 17th to the 18th of last month last night. The records show that all Federal Reserve (Fed) officials agreed on a rate cut, but there is still a disagreement on whether to cut by 1 or 2 percentage points.
What are the reasons for supporting a rate cut of 1 or 2 percentage points?
According to the meeting records, officials who support a rate cut of 1 percentage point believe that it is necessary to ensure that inflation continues to decline and that the labor market situation is not very severe:
Several participants pointed out that a 1 percentage point rate cut would be in line with the path of policy gradual normalization, allowing policymakers time to assess their policies as the economy develops.
As for the reasons for a 2 percentage point rate cut, the FOMC meeting records indicate that it is because most officials are considering the progress of inflation and risks in the labor market:
It is generally believed that readjusting the monetary policy stance in this way can align with recent inflation and labor market indicators from the beginning.
Some officials even believe that there were already valid reasons to implement a 1-point rate cut in July, and recent economic data further strengthened their reasons for cutting rates.
Fed's Powell: There may be one or two more rate cuts this year.
After the release of the FOMC meeting minutes, Fed official Powell stated that he fully supports the decision to cut 50 basis points in September and suggests that the Fed may cut rates again 1 to 2 times this year. However, the magnitude of the rate cut in September does not indicate the future pace and magnitude of rate cuts.
However, Citadel Securities holds a more pessimistic view on rate cut expectations, believing that the strong US economy and stubborn inflation will lead the Fed to cut rates only once this year. Citadel Securities' Global Head of Rates Trading, Michael de Pass, expressed his opinion on this:
I will boldly say that in the remaining time this year, we will ultimately only see a 25 basis point rate cut. Although the market still suggests a 50 basis point cut, both the fundamental economic strength and the stickiness of inflation make it a bit high.
Market estimates that the Fed may not cut rates in November.
In addition, according to the latest data from the CME FedWatch tool, the market currently believes the probability of the Fed keeping the current rate unchanged in November has risen from 0 last week to 17.1%, while the probability of a 1-point rate cut is 82.9%, and the probability of a 2-point cut has dropped to 0.