Fed Minutes Show Growing Discord Over December Interest Rate Decision
Federal Reserve officials disagreed over cutting interest rates at their October meeting, according to CNBC. The minutes released Wednesday showed policymakers divided between concerns over a slowing labor market and persistent inflation. The Federal Open Market Committee approved a quarter-percentage-point cut by a 10-2 vote. The reduction lowered the benchmark rate to a range of 3.75% to 4%.
The meeting minutes revealed multiple camps within the committee. Many participants favored lowering rates at the October meeting. Some supported the decision but could have accepted keeping rates unchanged. Several opposed any reduction. The split extended to December outlook discussions. Many officials said no more cuts are needed through year end. Only several participants suggested another December cut might be appropriate if economic conditions evolved as expected.
Two dissenting votes came from opposite positions. Governor Stephen Miran preferred a half-point cut. Kansas City Fed President Jeffrey Schmid wanted no cut at all. Fed Chair Jerome Powell told reporters that a December cut was not a "foregone conclusion." The committee faced additional challenges from a 44-day government shutdown. Reports on employment, inflation and other metrics were not compiled during that period.
Market Expectations Drop Sharply
Traders quickly adjusted their expectations after the minutes release. Markets now price in roughly 31% probability of a December rate cut. That figure represents a dramatic shift from earlier forecasts. A month ago, traders assigned 95% probability to a December reduction, according to CNBC.
The policy uncertainty stems from conflicting economic data. Inflation remains at 3%, well above the Fed's 2% target. The labor market shows signs of cooling but unemployment stays low at 4.3%. Officials must balance these competing pressures. Some policymakers worry that additional cuts could prevent reaching the inflation goal. Others fear that holding rates steady could damage employment.
Treasury yields rose following the minutes release. The 10-year yield moved to 4.133%, up more than 1 basis point. Stock markets showed mixed reactions. The recalibration affects borrowing costs for consumers and businesses. Mortgage rates, credit card interest and business loans all respond to Fed policy changes.
Monetary Policy Faces Dual Pressures
The Federal Reserve confronts an unusual policy dilemma. Both sides of its dual mandate face pressure simultaneously. Price stability remains elusive after nearly five years of elevated inflation. Meanwhile, monthly employment growth has slowed from 150,000 jobs to approximately 25,000 jobs, according to Fortune.
Regional Fed presidents have taken different stances on policy direction. Boston Fed President Susan Collins expressed caution about further cuts. Chicago Fed President Austan Goolsbee warned about front-loading rate reductions. New York Fed President John Williams described the situation as a "balancing act." These divergent views reflect genuine uncertainty about the economic trajectory.
The committee also decided to end its balance sheet reduction program on December 1. The Fed has reduced holdings by more than $2.5 trillion from pandemic peaks. The remaining balance stands at approximately $6.6 trillion. This decision provides additional monetary support independent of rate policy.
Central banks globally face similar challenges balancing growth and inflation concerns. The European Central Bank has cut rates more aggressively than the Fed. Other major economies also navigate between supporting employment and controlling prices. The Fed's cautious approach reflects continued economic resilience alongside stubborn inflation.
Further Reading
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