Federal Reserve officials at their meeting on July 30-31 agreed to cut short-term interest rates but shied away from saying how many more steps they might be willing to take this year to ease monetary policy.
Instead, officials opted for a meeting-by-meeting approach to upcoming interest-rate decisions.
The minutes of the July meeting, released Wednesday, reveal that the Fed governors and regional bank presidents generally favored an approach “that avoided any appearance of following a preset course.”
Voting Fed members said “it was important to maintain optionality in setting policy.”
There was a clear split among committee members about whether to cut rates in July.
Two Fed officials would have preferred a half-point rate cut ,while “several” wanted no move at all.
After the minutes were released, Minneapolis Fed President Neel Kashkari confirmed on Twitter that he was one of the two officials who wanted a half-point cut.
In the end, the Fed voted 8 to 2 to lower its target for short-term interest rates by 25 basis points.
Most Fed members who supported the rate cut agreed with Fed Chairman Jerome Powell’s assessment that it was a “mid-cycle adjustment” and thus not the start of an aggressive easing campaign.
A number of officials said the Fed had to remain “flexible” and focused on the economic data given the risks weighing on the economy.
Tensions between the U.S. and China over trade policy escalated the day after the July FOMC meeting. As a result, financial markets SPX, +0.76% are now pressing the Fed for a series of rapid-fire interest rate cuts. Futures markets are priced for a 100% chance of a quarter percentage point cut in September and believe there will be three more similar cuts over the next year.
Powell will get a chance to give an update on the policy outlook on Friday in a speech from Jackson Hole, Wyo.
Stocks have been volatile in the past 10 days on growing fears of a recession stemming in part on the fall in long-term bond yields TMUBMUSD10Y, +2.29% below short-term bond yields, known as an inverted yield curve.
Only a “few” Fed officials thought the yield curve could be a signal that the Fed “would soon need to lower the federal funds rate substantially in response.”
The Dow Jones Industrial Average DJIA, +0.89% was up 287 points prior to the release of the minutes on Wednesday afternoon.
President Donald Trump has kept up a constant bombardment of negative comments about Fed policy and is pushing the Fed to engineer an aggressive monetary easing. Analysts said the White House is also becoming more worried about the chances of a recession.
The Fed staff didn’t see a recession as a likely outcome. They forecast moderate economic growth through 2020 and then a slight slowdown in 2021.
But the staff forecast did note that there were downside risks. There was a possibility of “more substantial slowing” in economic growth from slowing business investment and manufacturing, the minutes said.
Trade tensions were more likely to move in directions that could have a negative effect on the economy, the Fed staff said.