Investing.com – A “substantial majority” of Federal Reserve policymakers backed the central bank’s jumbo rate cut in September, though some members preferred to kick off the rate cutting cycle with a more modest cut on worries about economic and labor market strength, according to the minutes of the Federal Reserve’s Sept. 17-18 meeting, released Wednesday.
At the conclusion of its previous meeting on Sept. 18, the Federal Open Market Committee, or FOMC, reduce its benchmark rate by 50 basis points to a range of 4.75% to 5%, marking the first rate cut since 2020.
“A substantial majority of participants supported lowering the target range for the federal funds rate by 50 basis points to 4-3/4 to 5 percent,” the Fed minutes showed. The members believed that a larger cut would help “bring it into better alignment with recent indicators of inflation and the labor market.”
The decision wasn’t unanimous as Federal Reserve Governor Michelle Bowman preferred to lower rates by just 25bps.
Other Fed members, however, also appeared wary somewhat of kicking off the rate cutting cycle with a half point cut. “Several participants noted that a 25 basis point reduction would be in line with a gradual path of policy normalization that would allow policymakers time to assess the degree of policy restrictiveness as the economy evolved,” the minutes showed.
On the outlook for rate cuts, members expected that “if the data came in about as expected, with inflation moving down sustainably to 2 percent and the economy near maximum employment, it would likely be appropriate to move toward a more neutral stance of policy over time.”
At the meeting, the Fed’s summary of economic projections, or SEPs, showed that Fed members changed their forecast on rate cuts. They estimated the need for another 50 basis points of cuts compared with a prior estimate in June for just one cut, with several further cuts, which would eventually take the central bank’s benchmark rate to 2.9% in 2026.
But a lot has changed since the September Fed meeting. Data pointing to a stronger-than-expected labor market signaling strength in the economy has unnerved bets on further jumbo rate cuts, with some even questioning whether the central bank could pause its rate cutting cycle.
“The market is now pricing fewer rate cuts than the Fed’s projections, which is a significant shift from just a few weeks ago,” UBS strategists said in a Tuesday note.
Following the strong September jobs report, however, some Fed members continued to back further rate cuts, welcoming the strength in the labor market as sign the economy remains on track for a soft landing.
“Right now, I think monetary policy is well positioned for the outlook, and if you look at the SEP projections that capture the totality of the views, it’s a very good base case with an economy that’s continuing to grow and inflation coming back to 2%.” New York Fed President John Williams said on Tuesday.
