Highlights:

"The vast majority" of attendees support a 50 basis point rate cut.

The resolution shows that ultimately only one person voted against the 50 basis point cut, but the minutes show that "some" attendees believed there were reasons to cut 25 basis points in the July meeting, some believed that a 25 basis point cut aligns with the gradual normalization of policy, and "several" could have supported a 25 basis point cut in September.

Several individuals believe that a 25 basis point cut may indicate a more predictable policy path. Several individuals believe that the overall policy path, not the initial rate cut magnitude, is more important in determining the extent of policy constraints.

Monetary decisions have no predetermined path and depend on the balance of economic development, economic outlook impact, employment, and inflation risks.

There are differing views within the Fed on the extent of tightening. Some emphasize the need for external communication, stating that even with a rate cut, balance sheet contraction may continue for some time.

Due to softer labor market indicators, Fed staff have lowered their economic growth forecasts for the second half of this year; nearly all decision-makers believe that risks of the employment outlook deteriorating have increased, with risks broadly balanced to achieve inflation and employment goals.

Almost all decision-makers have more confidence in inflation persistently falling to the target. Some people say that nominal wage growth is continuing to slow down, while others say that wage increases are unlikely to become a common source of inflation pressure in the near term.

"New Federal Reserve Communications": Minutes show that the vast majority of officials support a larger rate cut, as the economy is robust, unemployment is low, and inflation remains above target. An unspecified number of officials believe a small rate cut is reasonable; the minutes mention few factors that will determine future decisions.

Recent meeting minutes revealed a significant division within the Federal Reserve three weeks ago regarding the decision for a substantial rate cut. Although ultimately only one person voted against a 50 basis point rate cut, 'some' decision-makers favored the more conventional 25 basis point rate cut, and 'several' were originally likely to vote for a 25 basis point rate cut.

Senior Federal Reserve commentator known as the 'New Federal Reserve Communications', journalist Nick Timiraos, subsequently mentioned the divergence exposed by the meeting minutes in an article, summarizing it as: "'The vast majority' of officials support a larger 50 basis point rate cut, but some officials support a smaller 25 basis point rate cut."

Timiraos's article points out that the Federal Reserve typically prefers to adjust rates by 25 basis points, as it allows Fed officials more time to study the impact of policy adjustments. The recent meeting minutes indicate that an unspecified number of officials believe that given the robust economic activity, low unemployment, and inflation rates still above the Fed's target, a small rate cut in September is reasonable.

The article states that the meeting minutes mention fewer factors that will determine future rate decisions. The minutes state that if inflation continues to fall towards the Fed's 2% target and employment continues to grow in line with recent trends, 'it may be appropriate over time to move the policy stance closer to neutral.'

"Some" participants believed there was reason to cut by 25 basis points at the last meeting. 'Several' individuals were likely to support this reduction in September.

On Wednesday, October 9th, Eastern Time, the Federal Reserve released the meeting minutes, showing that at the Federal Open Market Committee (FOMC) meeting ending on September 18th, given the progress in lowering inflation and 'almost all' participants believing that the risks of achieving employment and inflation goals are roughly balanced, meeting decision-makers unanimously agreed to cut rates, but disagreements exist regarding the extent of the rate cut.

Minutes stated that a substantial majority of participants supported a significant 50 basis point rate cut. They generally believed that recalibration of this monetary policy stance would start to align the stance more closely with recent inflation and labor market indicators. They also emphasized that this move would help maintain the strong momentum of the economy and labor market, while continuing to promote progress in lowering inflation, reflecting the balance of risks to employment and inflation.

In contrast, other parts of the decision-makers supported a smaller rate cut of 25 basis points, and some pointed out that there was a reason to cut 25 basis points at the last meeting in July. The minutes stated:

"Some participants pointed out that there was a reason to cut 25 basis points at the last meeting, and data released during the (two) meetings further proved that inflation is sustainably moving towards 2%, while the labor market continues to cool.

Given that inflation remains relatively high, economic growth remains robust, and the unemployment rate remains low, some participants indicated their preference to lower the (policy rate) target range by 25 basis points at this meeting. A few others indicated that they might have supported this decision.

Several participants pointed out that a 25 basis point rate cut is in line with the gradual normalization of monetary policy, which will give policymakers time to assess the extent of policy constraints as the economy develops.

A few participants also mentioned that a 25 basis point rate cut may indicate a more predictable path towards policy normalization. A few participants pointed out that in determining the extent of policy constraints, the overall path of policy normalization is more important than the specific magnitude of the initial easing at this meeting.

According to the above statement, Federal Reserve decision-makers supporting a 25 basis point rate cut should be more than just one person as reflected in the post-meeting decision statement.

The decision statement shows that among the FOMC voting members, 11 people supported a 50 basis point rate cut, with only Federal Reserve Board member Bowman voting against, advocating for a 25 basis point rate cut. Thus, Bowman became the first Federal Reserve Board member since 2005 to vote against the majority decision at an FOMC interest rate meeting.

The monetary policy decision depends on economic development, economic outlook, and the balance of employment and inflation risks.

When discussing the prospects of monetary policy, US Federal Reserve decision-makers emphasize the need to make it clear to the public that this rate cut should not be seen as the Fed expecting a gloomy economic outlook. They believe that decisions depend on changes in economic conditions, the impact of economic outlook, and the balance of risks between employment and inflation. The minutes stated:

"Participants stressed the need to convey that the recalibration of policy stance at this meeting should not be interpreted as evidence of a less optimistic economic outlook. Nor should it be interpreted as implying that the pace of policy easing will be faster than the assessment of an appropriate path by participants."

"Participants generally agreed that it must be communicated that the Federal Open Market Committee's (FOMC) monetary policy decisions depend on the development of the economy, the impact on the economic outlook, and the balance of risks, and are therefore not pre-set paths."

Different views on the degree of tightening, balance sheet reduction may continue for some time.

The minutes also mentioned that there are differing views within the Federal Reserve on the current degree of monetary policy tightening. Some emphasize the need to communicate that even if there is a rate cut, the reduction of the balance sheet (tapering) may continue.

"Those assessing the degree of monetary policy tightening stated that they believe the monetary policy is tight, although they have expressed a range of different opinions on the degree of tightness."

"Some participants discussed the importance of communication, stating that even if the Federal Open Market Committee (FOMC) lowers the target range for the federal funds rate, the ongoing reduction of the Fed's balance sheet may continue for a period, which is crucial."

Almost all decision-makers believe that the downside risks to employment prospects have increased.

On the economic outlook side, at the September meeting, Federal Reserve staff predicted that the US economy will remain robust, with the forecast for real GDP growth roughly the same as the July meeting, but the unemployment rate slightly higher than expected in July. The minutes stated:

"Although actual GDP growth in the second quarter was stronger than expected by staff, the forecast for economic growth in the second half of this year has been revised downwards, primarily due to recent labor market indicators weaker than expected."

When discussing risks and uncertainties related to the economic outlook, participants pointed out that the downside risks to employment have increased. The minutes stated:

"Almost all attendees believe that the upside risks to the inflation outlook have diminished, while the downside risks to employment prospects have increased. Therefore, these participants now assess that the risks to achieving the dual mandate goals of the FOMC are roughly balanced."

Almost all decision-makers are more confident that inflation will continue to decline towards the target.

Regarding the inflation outlook, the minutes show that "almost all participants stated that they have increased confidence in inflation continuing to approach 2%" and listed some factors that may continue to exert downward pressure on inflation.

These factors include further modest slowing of real GDP growth due to Fed monetary tightening; well-anchored inflation expectations; weakening pricing power; increased productivity; softening of global commodity prices.

Some participants pointed out that nominal wage growth continues to slow down, while a few participants indicated that there are signs that wage growth will further decline. These signs include a decrease in the growth rate of cyclically sensitive wages, as well as data showing that job switchers are no longer receiving higher wages than other employees. Several participants noted that since wages account for a relatively large proportion of costs in the service industry, a slowdown in nominal wage growth will be particularly beneficial for downward inflation in this sector.

Additionally, some participants pointed out that due to the rough balance of supply and demand in the labor market, wage increases are unlikely to become a significant source of inflationary pressure in the near term.

Regarding service prices in the real estate market, some participants suggested that inflation may accelerate downward soon, reflecting a slowdown in the rate of rent increases faced by new tenants. Participants emphasized that the inflation rate still remains relatively high to a certain extent, and they are committed to bringing inflation back down to the Federal Reserve's target of 2%.

Editor/Lambor