Caixin Oct 10th News (Editor Shi Zhengcheng) Early Thursday morning Beijing time, the Fed released the minutes of the September monetary policy meeting, revealing why policymakers chose to cut rates by 50 basis points three weeks ago and the internal differences among officials.

In the September Fed rate decision, out of the 12 voting members of the FOMC, 11 voted in favor of a 50 basis point rate cut to the range of 4.75% - 5%, with only Governor Bowman voting against, supporting a smaller 25 basis point cut. However, the minutes show that the officials' divergence of opinions was greater than what the voting numbers on the surface suggested, also implying the efforts made by Fed Chair Powell to guide a larger rate cut.

Chaos of opinions

The meeting minutes concluded that the "vast majority" of attendees agreed to cut the federal funds rate by 50 basis points, however, there were "some attendees" who felt that a 25 basis point cut would have been a better choice. What's more, there were some in the "50 camp" who publicly sat on the fence, indicating that they could have actually supported the decision to cut rates by 25 basis points.

Officials supporting a larger rate cut believe that opting for a 50 basis point cut for the first time aligns with the latest inflation and labor market data, thereby helping to continue driving progress in reducing inflation while assisting in maintaining robust employment and economic growth.

The faction that believes a 25 basis point rate cut is more reasonable emphasizes that adopting a rate cut beyond expectations does not align with the gradual reduction of policy rates by the Federal Reserve. At the same time, the economic data itself only supports a rate cut, but does not point to an oversized rate cut.

The minutes show that some decision-makers believe that with the economy maintaining steady growth and the unemployment rate at a low level, a 25 basis point rate cut would be more in line with the gradual normalization of monetary policy, and would also give policymakers more time to assess economic progress. Some added that steadily advancing a 25 basis point rate cut would also demonstrate a predictable path for monetary policy.

The outlook remains ambiguous.

In terms of the subsequent rate cut path, the meeting minutes continued the Federal Reserve's consistent ambiguous approach.

The meeting minutes only indicate that if inflation continues to decline towards the Federal Reserve's 2% policy target and employment maintains recent expansion trends, a more neutral stance may be appropriate over time. But obviously, Federal Reserve officials themselves are not very clear on where the so-called "neutral rate" actually lies. In last month's dot plot, most committee members gave a wide range forecast of 2.4% to 3.8%.

In fear of sparking excessive market excitement, decision-makers are quick to emphasize that a 50 basis point rate cut in September should not be seen as evidence of a "not-so-good" economic outlook, or as implying an accelerated rate cut speed.

Of course, after 3 weeks, there are hardly any market participants still imagining the Federal Reserve cutting rates rapidly. Following the release of better-than-expected non-farm data last week, the main topics have shifted from "Will there be a 50 basis point rate cut in November" to "Will there be no rate cut next month."

Following the September rate meeting, there was a quick spike in U.S. Treasury yields, with the 10-year Treasury yield climbing from a low of 3.59% in September to 4.07%. This clearly shows that while the Federal Reserve is showing a dovish stance, investors' rate cut expectations have sharply decreased. It is for this reason that the meeting minutes did not have a direct impact on Wednesday's U.S. stock market.

Powell also emphasized in last week's public events that the Federal Reserve is not in a hurry to cut interest rates quickly. If the economic slowdown is faster than expected, the rate cut can be faster; if the economic slowdown is slower, the rate cut can be slower.