Chairman of U.S's Federal Reseve Jerome Powell - Photo by The Fed

JAKARTA (TheInsiderStories) – Federal Reserves (Fed) policymakers split over the The United States (US) interest rate policy, showed at the minutes note in their meeting on July 30 – 31. The board of governors viewed their July’ cut as an adjustment that would help counter the effects on the outlook of weak global growth and trade policy uncertainty.

“Members who voted for the policy action sought to better position the overall stance of policy to help counter the effects on the outlook of weak global growth and trade policy uncertainty, insure against any further downside risks from those sources, and promote a faster return of inflation to the 2 percent target,” the minutes stated.

After get pressured from President Donald Trump, the Fed cut rates by a quarter-point to 2 percent and 2.25 percent for the first time since 2008, a move Chairman Jerome Powell called a “mid-cycle” adjustment. The minutes described the quarter-point cut as part of an “ongoing reassessment” of the policy path that began in late 2018.

Policymakers also noted that further policy action would be guided by incoming information and its implications for the economic outlook and that any appearance of following a preset course should be avoided.

The minutes did not shift the outlook for further rate cuts this year. January fed funds futures indicate a rate of 1.49 percent at the end of 2019, having indicated 1.485 percent just before the release. With an effective fed funds rate currently at 2.13 percent, that implies almost 65 basis points of reductions this year.

The Fed went out of its way to highlight the reasons for the cut in three bullet points, citing signs of the economic deceleration, risk management concerns, and too-low inflation. The minutes said participants noted that “trade uncertainty would remain a persistent headwind for the outlook.”

FOMC participants said they still viewed a sustained US economic expansion, strong labor markets, and inflation near the target “as the most likely outcomes.”

The minutes began with a lengthy discussion of the Fed’ policy strategy review, which indicated that officials aren’t ruling out any options, including an expansion of their policy toolkit.

Since the last meeting, the dollar has strengthened as the global economic outlook dimmed, raising the prospect for rate cuts abroad. Yields on 10-year Treasury notes have plunged toward record lows. Investors expect as many as three more quarter-point rate cuts this year to offset increasing downside risks, including a move next month.

Some officials pressed for a 0.5 percentage point cut, rather than the 0.25 percentage point reduction announced. Others resisted any change, the minutes said. The differences, in minutes released on Wednesday, come as Trump presses for a one percentage point cut.

The minutes show that the Fed did not discuss the president’s criticism. After four rate increases last year, the last one in December, the Fed has been under relentless pressure from Trump to stimulate the economy by reversing course and slashing rates.

The minutes show a broad concern among the 12 Fed policymakers over a global economic slowdown, a US – China trade war, and sluggish inflation. A couple of participants indicated that they would have preferred a 50 basis point cut, said the minutes, which added that policymakers favoring such a move were concerned by inflation being too low.

Powell, dubbed “clueless” is one Twitter attack by Trump, acknowledged at his news conference on 31 July that the rate cut was meant as insurance “against downside risks from weak global growth and trade policy uncertainty, to help offset the effects these factors are having on the economy”.

And it comes amid uncertainty over whether Trump feels some sort of economic stimulus is needed. On Tuesday, he hinted at the need for cuts in payroll tax and capital gains tax, only to dismiss the idea on Wednesday.

Analysts will be hoping that Powell can provide more clarity on Friday when he is due to give a speech during a meeting of global central bankers at the annual Jackson Hole meeting in Wyoming.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com