Fed minutes show divide over October rate cut and cast doubt about December

Core Viewpoint - The U.S. Federal Reserve is experiencing internal disagreements regarding the necessity and timing of future interest rate cuts, particularly in light of a slowing labor market and persistent inflation concerns Group 1: Interest Rate Decisions - The Federal Open Market Committee (FOMC) approved a quarter percentage point cut in the overnight borrowing rate to a range of 3.75%-4% during the October meeting, but the decision was contentious with a 10-2 vote indicating significant division among officials [5] - Many officials expressed skepticism about the need for an additional cut in December, with "many" suggesting that no further cuts are necessary at least in 2025 [2][4] - The minutes indicated that while several participants supported a further cut in December, a majority believed it would be appropriate to maintain the current target range for the rest of the year [3][4] Group 2: Economic Outlook and Concerns - Officials are divided on the economic outlook, with some viewing the current policy as still restrictive and hindering growth, while others believe the economy's resilience suggests the policy is not overly restrictive [7] - Concerns were raised about a slowing labor market and inflation that has not shown signs of returning sustainably to the Fed's 2% target, reflecting multiple perspectives within the committee [5][6] Group 3: Internal Divisions - The committee is split between inflation doves, who advocate for cuts to support the labor market, and hawkish members, who worry that further cuts could hinder progress towards the inflation target [8] - Moderates within the committee, including Fed Chair Jerome Powell, prefer a cautious approach, with one participant advocating for a more aggressive half-point cut while others opposed any cuts [9] Group 4: Data Limitations and Policy Formulation - The decision-making process was complicated by a lack of government data during a 44-day government shutdown, which affected reports on labor market and inflation metrics [10] - Despite the data limitations, some members believe there is sufficient information to formulate policy, contrasting with Powell's analogy of "driving in the fog" [10] Group 5: Balance Sheet Management - The FOMC agreed to halt the reduction of Treasury and mortgage-backed securities in December, a process that has reduced the balance sheet by over $2.5 trillion, leaving it around $6.6 trillion [11]