Differences of Opinion on December Rate Cut in the Fed Minutes

Fed FOMC Meeting Minutes Released

The minutes of the Federal Open Market Committee (FOMC) meeting held on October 28-29 contain important signals that investors are closely monitoring. Discussions about the next interest rate decision show marked differences ahead of the December meeting.

Debate Over Rate Cuts and Economic Developments

In the meeting minutes, while some participants indicated that an additional interest rate cut might be appropriate in December, many members argued that the current target range (3.75-4.00 percent) should remain unchanged for the remainder of the year. Specifically, some participants suggested that if economic indicators continue to align with expectations, further cuts would be warranted.

Diverging Views Among Committee Members

During the meeting, Stephen I. Miran called for a half-point cut, while Jeffrey R. Schmid preferred to keep interest rates steady. There is a significant divide among members between those supporting rate cuts and those advocating for maintenance of the current rates. A few members expressed outright opposition to rate cuts, arguing that inflation should not fall below the target level of 2 percent.

Inflation Data and Monetary Policy

In September, the total PCE price inflation was 2.8 percent, with core PCE inflation also remaining at that figure, indicating that total inflation has increased by 0.5 percentage points over the past year. The tightening of money market conditions suggests that reserve levels are approaching sufficient levels. Repo rates have risen significantly compared to interest rates on reserve balances, while the use of the overnight reverse repo facility has dropped to its lowest level since 2021.

Future Expectations and Labor Market

Participants reached a consensus on ending balance sheet reduction on December 1. Additionally, it was decided to direct principal payments between agency securities and Treasury bonds. Recent repayments for agency securities are expected to be between 15 to 20 billion dollars per month.

Comments regarding the labor market highlight increasing downside risks to employment and a rising unemployment rate. This situation may impact the Fed's future policy decisions.