Fed officials avoided in July planning future interest rate cuts

Bloomberg

At their meeting on July 30 and 31, Federal Reserve officials agreed to cut short-term interest rates, but refrained from saying how much action they might be willing to take this year to ease the policy. monetary.

Instead, officials opted for a meeting by meeting approach for future interest rate decisions.

The minutes of the July meeting, released on Wednesday, reveal that Fed governors and regional bank presidents have generally advocated an approach that "avoids any appearance of following a pre-established course."

Fed members who voted said that it was important to maintain the optional nature in the definition of the policy.

Committee members were clearly divided on the desirability of reducing rates in July.

Two Fed officials would have preferred a rate cut of half a point, while "many" did not want to move at all.

After the minutes were released, Minneapolis Fed President Neel Kashkari confirmed on Twitter that he was one of two officials who wanted a half-point discount.

In the end, the Fed decided by 8 votes to 2 to lower its short-term interest rate target by 25 basis points.

Most of the Fed members who supported the rate cut agreed with Fed Chairman Jerome Powell's assessment that it was a "mid-term adjustment" and not the beginning of the Fed. an aggressive easing campaign.

A number of officials said the Fed should remain "flexible" and focused on economic data, given the risks to the economy.

Tensions between the US and China on trade policy intensified the day after the July FOMC meeting. As a result, financial markets

SPX, + 0.82%

are now pressuring the Fed for a series of rapid interest rate cuts. The futures markets have a price that gives 100% chance of reducing by a quarter point in September and it is expected that there will be three other similar reductions over the next year.

Powell will have the opportunity to take stock Friday on the political outlook in a speech by Jackson Hole, Wyo.

Stocks have been volatile over the past 10 days due to growing fears of a recession due in part to lower long-term bond yields

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short-term bond yield, known as the inverse return curve.

Only a few "officials" of the Fed thought that the yield curve could indicate that the Fed "should soon drastically lower the rate of federal funds".

The Dow Jones Industrial Average

DJIA, + 0.93%

was up 287 points before the publication of the minutes Wednesday afternoon.

President Donald Trump has stopped bombarding with negative comments on the Fed's policy and pushing him to develop an energetic monetary easing. According to analysts, the White House also worries about the chances of a recession.

Fed staff did not consider a recession a likely outcome. They predict moderate economic growth until 2020, then a slight slowdown in 2021.

However, staff forecasts indicated that there were downside risks. According to a report, the slowdown in business investment and manufacturing could lead to a "more significant slowdown" in economic growth.

Trade tensions are more likely to move in directions that could have a negative effect on the economy, said Fed staff.