Fed members ’strongly’ differ on December rate cut as divide on policy deepens

Investing.com – Federal Reserve policymakers expressed ’strongly differing’ views on a December rate cut, sowing doubt further easing this year, with some favoring a pause amid concerns about stalling progress on inflation while others believe rate cuts are needed to cushion softening in the labor market, the minutes of Fed’s Oct. 28-29 meeting released Wednesday.            

"In discussing the near-term course of monetary policy, participants expressed strongly differing views about what policy decision would most likely be appropriate at the Committee’s December meeting," the minutes showed. 

In the clearest sign that Fed members could be leaning toward a pause on rate cuts at the December, the minutes suggested that many participants believed "it would likely be appropriate to keep the target range unchanged for the rest of the year."

Still, a potential pause in December isn’t likely to slam the door shut on further rate cuts, with most members seeing further easing though timing remains uncertain, according to the minutes. 

"Most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate as the Committee moved to a more neutral policy stance over time," it added.

At the conclusion of its October meeting, the Federal Open Market Committee, or FOMC, cut its benchmark rate to a range of 3.75% to 4%. 

The second rate cut of the year was accompanied by signs of deepening divisions within the Fed.

"Many participants were in favor of lowering the target range for the federal funds rate at this meeting, some supported such a decision but could have also supported maintaining the level of the target range, and several were against lowering the target range," according to the minutes.

At the meeting, those in favor of rate cuts pointed to rising downside risks to employment in recent months and diminishing upside risks to inflation, while those in favor of pause "expressed concern that progress toward the Committee’s inflation objective had stalled this year," the minutes showed.

In the weeks leading up to the Fed minutes, ’Fed speak’ from FOMC members have laid bare the depth of division, sowing doubt on whether a December rate cut is in play. 

"I do not think further cuts in interest rates will do much to patch over any cracks in the labor market - stresses that more likely than not arise from structural changes in technology and immigration policy," Schmid said in recent remarks. While Miran said he would continue to back a jumbo 50bps cut at the December meeting. 

The odds of a rate cut in December is now about 26%, according to Investing.com’s Fed Rate Monitor Tool, down sharply from about 94% a month ago.