Federal Reserve Policymakers Increasingly Divided On Way Ahead, Minutes Show

Most Federal Reserve policymakers supported the need for an interest rate cut in September, minutes of the central bank’s last policy meeting showed, but they remained divided on the path ahead for monetary policy.

The readout of the meeting, released on Wednesday, also showed that the Fed agreed it would soon need to discuss increasing the size of its balance sheet following ructions in short-term money markets. Fed Chair Jerome Powell announced an imminent expansion of the central bank’s assets on Tuesday.

Fed policymakers at the Sept. 17-18 meeting decided, in a 7-3 vote, to lower the benchmark overnight lending rate by a quarter percentage point to between 1.75% and 2%.

“Most participants believed that a reduction of 25 basis points in the target range for the federal funds rate would be appropriate,” the Fed said in the minutes. The U.S. central bank has lowered borrowing costs twice this year after having raised interest rates nine times since 2015.

But what remains unclear from the minutes is how a softening in economic data since that meeting will affect viewpoints on the need for further rate cuts, if at all.

In projections that accompanied the September statement, seven of the Fed’s 17 policymakers indicated they forecast one more rate cut this year. Five policymakers did not see any more cuts needed and the other five projected a rate rise by the end of 2019. Investors overwhelmingly expect another rate cut at the next meeting on Oct. 29-30.

Since the meeting, economic data has increased fears that trade tensions are spilling over to the broader economy. U.S. manufacturing activity tumbled to a more than 10-year low and service sector activity fell to a three-year low in September. Consumer spending, which has been driving U.S. growth, has also begun to moderate.

The minutes “are consistent with already established division among the participants and a cloudy, if not stormy, economic outlook,” said Mark Hamrick, senior economic analyst at Bankrate.com, following the minutes.

Financial markets were little moved by the minutes, as investors focused on the ongoing trade saga. U.S. stocks and the dollar rose on a report China was open to a partial deal with the United States. U.S. Treasury prices were lower.

(Reuters)