Fed meeting minutes released and markets move strongly by Investing.com

Investing.com – Federal Reserve officials agreed at their September meeting but were unsure how aggressive this cut would be, and ultimately decided to cut it by Half a percentage point In an effort to balance confidence about inflation and concerns about the labor market, according to the report published on Wednesday.

The minutes of the meeting explained the reasons why policymakers decided to agree to a significant cut in interest rates by 50 basis points for the first time in more than four years, and showed that members divided in terms of the economic outlook.

Some officials had hoped for a cut of less than a quarter of a percentage point as they sought assurances that inflation was moving down steadily and were less concerned about… Employment trends and the labor market.

Department in the Federal Council

In the end, only one FOMC member, conservative Michelle Bowman, voted against a percentage point cut, saying she would prefer a fourth point. But the minutes indicated that others preferred a lower degree as well. It was the first time a conservative opposed an interest rate vote since 2005 for the Federal Reserve, which is known for monetary policy unity.

“Some participants noted that they would prefer to lower the target range by 25 basis points at this meeting, while a few other participants expressed their preference for such a decision,” said the minutes.

The document said: “Many participants said that a 25 basis point reduction would be consistent with a gradual path to policy normalization that would allow policymakers time to assess the degree of policy tightening as the economy developing. ” “Some participants also said that a 25 basis point move could indicate a more predictable path to policy normalization. “

Since the meeting, economic indicators have shown that the labor market may be stronger than expected by officials who wanted a 50 basis point move.

In September, jobs rose by 254,000, much more than expected, and the unemployment rate fell to 4.1%.

The data helped bolster expectations that while the Fed appears to be in the early days of an easing cycle, future cuts may not be as strong as September’s move. Chairman Jerome Powell and other Fed officials in recent days have backed the expected 50 basis point cuts indicated by the informal “dot chart” forecast released after the September meeting.

The minutes indicated that the vote to approve the 50 basis point reduction came “as a result of the progress made on inflation and the balance of risks” against the labor market. The minutes indicated that a “majority of participants” were in favor of the larger measure, without specifying the number of opponents. The term “participants” refers to the participation of the entire FOMC and not just the twelve voters.

The minutes also stated that some members wanted to cut the July meeting, which did not happen.

While the document was more specific about the debate about agreeing to a 25 basis point rate cut, there wasn’t much information about why voters supported the move either.

In this press conference after the meeting, Powell used the word “recalibration” to summarize the decision to cut, and the term also appears in the minutes.

Participants emphasized the importance of clarifying that a rebalancing of the policy stance at this meeting should not be interpreted as evidence of a less favorable economic outlook or as a sign that the pace of policy easing will accelerate than assess participants on the appropriate course,” the minutes said.

This rebalancing would bring the policy “better in line with recent inflation and labor market indicators.” Supporters of the 50 basis point cut also stressed that “​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ should be to maintain the strength of the economy and the labor market while continuing to increase progress in inflation, and would reverse to “Balance of risks.”

Under normal circumstances, the Fed prefers to cut quarter-point hikes. Before that, the Fed only moved half a point during the Covid pandemic and before that the 2008 financial crisis.

Expect interest now

Market prices suggest that the federal funds rate will end in 2025 in a range of 3.25% to 3.5%, roughly in line with the average forecast of 3.4%, according to the CME Group’s FedWatch. Futures markets have previously signaled a more aggressive path, and in fact are now pricing in around a 1 in 5 chance that the Fed will not cut rates at its November meeting 6-7.

However, the bond market behaved differently. Since the Fed meeting, 10-year and 2-year yields have risen by about 40 basis points.

Markets after the Fed minutes

Due to the minutes and an indication that not all members were in a hurry to reduce by 50 basis points, it moved up to 102.654 against the basket of foreign currencies, up 0.35%.

Meanwhile, prices fell 0.27% to $2,628.55 an ounce, while prices fell 0.45% to $2,610 an ounce.

As for the US market indices, they continue to rise together, rising 0.33% with 0.87%, and the S&P 500 with 0.49%.

US Treasury bond yields continue to rise, with the 10-year Treasury yield rising 0.97% to 4.073% now. The yield on Centtime Treasury bonds also jumped 0.75% to 4.009%.