A “substantial majority” of Federal Reserve officials at the central bank’s September meeting supported beginning an era of easier monetary policy with an outsized half-point rate cut.
But there appeared even broader agreement that the initial move would not commit the Fed to any particular pace of rate reductions in the future, according to just-released minutes of the two-day session.
Supporters of the half-point cut “observed that such a recalibration of the stance of monetary policy would begin to bring it into better alignment with recent indicators of inflation and the labor market,” said the minutes of the Sept. 17-18 session, at which the Fed lowered the benchmark policy rate to a range of 4.75% to 5% from the 5.25% to 5.50% range it had maintained since July of 2023.
Others noted there had been a “plausible case” to have cut rates at the July meeting and the data since then had only buttressed the case for easier policy.
“Some” participants, however, supported only a quarter-point cut, while “a few others indicated they could have supported such a decision.”
The minutes provided further detail on the breadth of opinion within the Federal Reserve as policymakers approved a rate cut of a size usually reserved for moments when the central bank is worried the economy is slowing fast and needs the support of looser financial conditions.
In this instance, Fed policymakers have referred to their initial cut as a “recalibration” of monetary policy to account for the fact that inflation has fallen sharply from the high levels seen in 2022 and 2023, and by some measures is near the Fed’s 2% target even as the economy remains relatively strong.
“It was important to communicate,” the minutes said, that the move “not be interpreted as evidence of a less favorable economic outlook.”
Still, concern about the labor market has been rising among Fed policymakers, with officials noting recent increases in the unemployment rate, and weak job and inflation readings in July and August.
Rate reductions could continue, Fed officials said at the meeting, as long as inflation continues to decline, with the pace and endpoint still open to discussion.
Incoming data would determine how policy evolved, the minutes said, while noting that if the economy behaves as expected “it would likely be appropriate to move toward a more neutral stance of policy over time.”
The half-point cut did earn a dissent from Fed Governor Michelle Bowman, the first from a governor since 2005, who felt a quarter-point cut was a better way to begin easing policy.
But in new economic projections issued after the September meeting, all but two policymakers penciled in at least 75 basis points worth of Fed cuts this year – outlooks that were not closed off by starting with a 50 basis point reduction.
The difference to the economy between starting with that versus a 25 basis point cut is seen as inconsequential by many policymakers, while the larger reduction in the wake of the weak August and July employment reports let Fed Chair Jerome Powell point in his post-meeting press conference to the Fed’s “strong” start to policy easing and commitment to maintaining a healthy job market.
More recent jobs data showed a rebound in employment growth and a drop in the unemployment rate.
Revisions to prior months data also boosted the July payroll gains to 144,000 from 89,000, erasing a particularly weak reading that some Fed officials said might have prompted a rate cut that same month had it been known at that time.
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