In September, Federal Reserve Chairman Powell faced some opposition when implementing a half percentage point rate cut, as some officials were more inclined towards a smaller quarter percentage point cut.

According to the financial news app, after the minutes of the Federal Open Market Committee (FOMC) meeting on September 17-18 released in Washington on Wednesday, 'some participants believed they were more inclined to lower the target interest rate range by 25 basis points at this meeting, while some officials said they could support this decision.' All participants unanimously agreed that reducing borrowing costs was appropriate.

The Federal Reserve lowered the benchmark interest rate by half a percentage point last month in an effort to protect economic expansion, despite easing inflation pressures and rising risks in the labor market. Despite disagreements, the minutes noted that 'the vast majority' of officials supported this significant rate cut.

Some officials believe that such a significant rate cut is not in line with their intention of gradually reducing rates. The minutes indicated, 'some participants pointed out that a 25 basis point cut is more in line with the path of gradually normalizing policy, providing policymakers with time to assess the extent of policy constraints as the economy evolves.'

Despite Federal Reserve Board Member Bowman being the only one opposing this decision, the minutes showed that the officials' disagreements were more pronounced than reflected in the nearly unanimous decision. This suggests that Powell played a leading role in pushing for a larger rate cut by the committee.

After maintaining borrowing costs at their highest level in 20 years to suppress inflation for over a year, almost all participants believed that the upward risks to inflation expectations had diminished, while the downward risks to the labor market had increased.

Outlook

Following the meeting, forecasts show that officials have different views on the extent to which interest rates should be cut by the end of this year. Seven officials are inclined to relax policies by 75 basis points in 2024, while two officials tend to only relax by 50 basis points. Another 10 decision-makers expect the rate cut to reach one percentage point or more.

After the significant rate cut in September, investors expect the Fed to make adjustments of a quarter of a percentage point in each of the remaining two policy meetings this year, according to futures market forecasts.

One challenge facing decision-makers is the so-called 'neutral interest rate' - the uncertainty about the level of borrowing costs that neither stimulate nor inhibit the economy. Although the median long-term forecast for the neutral interest rate has been steadily increasing in recent quarters, in September the individual decision-makers' forecasts ranged from 2.4% to 3.8%.

While policymakers view the current policy as 'restrictive,' the minutes point out that there are still 'differing views' on the degree of restrictiveness.

Powell's priority is to restore the inflation rate to the Fed's 2% target, but he is determined to avoid disrupting the economy in the process. At the post-decision press conference, Powell described this decision as a measure to prevent further weakness in the labor market.

Labor Market

Data released before the September meeting showed that job growth in August was weaker than expected, and employment data for the previous months was also revised downwards.

Meeting minutes show that the staff's forecast for the unemployment rate is only slightly increasing, but due to the weakness of the labor market, they have "revised down" their expectations for economic growth in the second half of the year.

Labor market data released since the meeting show stronger recruitment activity, with the unemployment rate dropping to 4.1%. The September employment report released last week showed that U.S. employers added 254,000 jobs, the largest monthly increase since March.

The discussion at the Federal Reserve also involves the central bank's balance sheet.

The minutes mentioned that "some participants discussed the importance of conveying the information that even if the committee lowers the target range for the federal funds rate, the Fed's actions to continue shrinking its balance sheet may persist for some time."