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– Fed officials are divided on the pace of rate cuts needed by the monetary institution.
Cacophony reigns at the Fed. Officials of the American Federal Reserve (Fed) seemed very divided on the pace of lowering the monetary institution’s rates that would be necessary during their last meeting, in mid-September, with some considering that inflation remained too high. At the last Fed meeting on September 11 and 12, “some participants considered that they would have preferred a reduction in 25 basis points for this meeting, others assuring that they would have supported such a decision”according to the minutes (minutes) of the Fed Monetary Committee (FOMC) published Wednesday October 9.
At the end of the last meeting, the monetary institution had lowered its interest rates 50 basis pointsto bring them back to a range between 4.75% and 5%, after having maintained it for more than a year between 5.25 and 5.50%. “Several participants noted that a cut of 25 basis points would be in line with the pace of the economy’s gradual return to normal, and thus maintain room for maneuver for future decisions”also underlines the report.
The United States economy threatened by Hurricane Helena and Israel-Iran tensions according to the Fed
2% inflation target
Nevertheless, FOMC members believed that “If the data were to follow the expected pace, with inflation returning to the 2% target and the economy nearing full employment, it would surely be appropriate to keep policy in balance in the long term.. They also insisted that “the realignment of monetary policy should not be interpreted as evidence of a less favorable economic outlook”.
The latest data relating to inflation should be known this Thursday, with the publication of the CPI index, on which Americans’ retirement pensions are indexed. The progression of the other index, PCE, which is favored by the Fed in its monetary policy decisions, has slowed significantly since its peak in 2022 and fell to 2.2% last August, coming very close to the target of 2% in the medium term provided for by the mandate of the American central bank.
Rate cut: “The Fed was trapped by its optimism on employment”
As for the unemployment rate, it fell back to 4.1% in September, with job creations well above expectations, after rising to 4.3% in recent months, seeming to support the idea of a slowdown in the labor market. The Fed remains cautious in the evolution of its monetary policy, regularly emphasizing that it remains primarily based on the evolution of macroeconomic data. Markets generally expect a 25 basis point cut at the next meeting, scheduled for November 6-7, and then another of the same magnitude at the last meeting of the year, in mid-December, according to the CME monitoring tool, FedWatch.
