Although the Federal Reserve launched its easing cycle with a "radical reduction" of 50 basis points last month, the latest meeting minutes reveal that there are still significant differences within the Fed regarding this decision.
The minutes of the meeting indicate that the vast majority of attendees agreed to lower the federal funds rate by 50 basis points, while some also suggested that a 25 basis point cut would be a better option. Furthermore, some attendees who expressed support for a 50 basis point interest rate cut also publicly stated that they could have supported the decision to cut interest rates by 25 basis points.
The meeting minutes also showed that some officials had hoped to cut interest rates in July, which was a factor in their support for a 50 basis point rate cut.
Economists' comments on this are that the Federal Reserve's attitude is much more cautious than the market previously believed and is not in a hurry to cut interest rates. In the future, the Federal Reserve is expected to gradually relax its monetary policy.
Oliver Allen, a senior US analyst at Pantheon Macroeconomics, said, "The Federal Reserve is not in a hurry to cut interest rates at the moment. But at the same time, he believes that the Federal Reserve has not realized how severe the economic difficulties are.
The central bank should take more urgent action to avoid a significant economic slowdown around the end of the year, "he added.
Ryan Sweet, Chief US Economist at Oxford Economics, stated that the meeting minutes increase the risk that the 2025 rate cut may be lower than he expected. He originally expected that the Federal Reserve would cut interest rates by 25 basis points at the last two meetings of this year, and then there would be four more 25 basis point rate cuts next year.
But after the Federal Reserve released the meeting minutes, Sweet stated in a latest report that by 2025, "the Fed may pause (its actions) for a longer period of time to assess the impact of 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 relaxation will be faster than the Fed's own predictions. Moreover, this is not a response to the worsening economic outlook. Some Federal Reserve officials also stated that considering all the uncertainties in the economic outlook, a gradual rate cut is appropriate.
Dallas Fed President Logan said on Wednesday that further easing of financial conditions could stimulate spending and push demand beyond supply, indicating that the Fed is not in a hurry to lower the federal funds target rate to "normal" or "neutral" levels.
Logan said that the Federal Reserve should gradually push for interest rate cuts while monitoring financial conditions, consumption, wage and price trends. The difficulty in determining the neutral interest rate is another reason why Logan advocates for gradual interest rate cuts. Neutral interest rate refers to the interest rate level that neither stimulates nor hinders economic growth.
Kathy Bostjancic, Chief Economist of Nationwide, an insurance and financial services company, said, "We expect the Federal Reserve to continue lowering the federal funds rate in the coming months, but at a smaller rate of 25 basis points
David Rogal, Chief Portfolio Manager of BlackRock Total Return Fund, said, "It's hard to say how much more loose 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 to cut interest rates twice by 25 basis points, but it is also possible that the Federal Reserve may decide not to cut rates in November or December.