Wednesday, November 20, 2019

Fed Members Back Policy Pause: FOMC Minutes

© Reuters.  © Reuters. – Most Federal Reserve policymakers expressed a willingness to keep rates steady following the central bank's October rate cut, according to the minutes of the last policy meeting released Wednesday.

On Oct. 30, the Fed cut its benchmark rate by 25 basis points to a range of 1.50% to 1.75% from 1.75% to 2.00%. It was the third rate cut of the year.

The minutes showed that the eight members of the Federal Open Market Committee who voted for the rate cut believed it was sufficient to support the economy, suggesting that further policy action at future meetings was unlikely. The Federal Open Market Committee is the Fed's rate-making body. Two FOMC members voted against the rate cut.

"With regard to monetary policy beyond this meeting, most participants judged that the stance of policy, after a 25-basis-point reduction at this meeting, would be well-calibrated to support the outlook of moderate growth, a strong labor market, and inflation near the Committee's symmetric 2 percent objective and likely would remain so as long as incoming information about the economy did not result in a material reassessment of the economic outlook," according to the FOMC minutes.

That echoed recent remarks from Federal Reserve Chairman Jerome Powell.

In his press conference following the rate-cut decision, the Fed chief signaled that monetary policy would likely remain on pause for the rest of the year unless there was a “material reassessment” of the central bank’s outlook on the economy.

The slow pace of inflation was singled out as one the key headwinds that prompted the Fed members to back the October rate cut, and there has been few signs that price pressures will gather pace and overshoot the Fed's 2% target.

"The information available for the October 29–30 meeting indicated that labor market conditions remained strong and that real gross domestic product (GDP) increased at a moderate rate in the third quarter," the minutes showed. "Consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in August. Survey-based measures of longer-run inflation expectations were little changed."

Investor expectations for the Fed to stay put on rates at its next meeting are all but priced in, according to's Fed Rate Monitor Tool.

Earlier this week, Powell was summoned to the White House for a sit-down with President Donald Trump. The talks were "good and cordial," Trump said in a tweet following the meeting.

The meeting came just a week after Trump lashed out at Powell, claiming more market-friendly Fed policies would have led stocks to rack up even more gains.

"If we had a Federal Reserve that worked with us, you could have added another 25% to each of those numbers I guarantee you that,” Trump said. “That doesn’t happen. But we all make mistakes, don’t we. Not too often, we do make them on occasion.”

The president also floated the idea of negative interest rates, but there appears little appetite among Fed members to support the idea amid worries that it risks introducing significant complexity or distortions to U.S. financial systems.

"All participants judged that negative interest rates currently did not appear to be an attractive monetary policy tool in the United States," the minutes showed. But Fed members did not rule out the possibility that "circumstances could arise in which it might be appropriate to reassess the potential role of negative interest rates as a policy tool," according to the minutes.

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