Federal Reserve officials were leaning strongly toward lowering interest rates in September, with the only point of contention appearing to be over the extent of the cuts, according to meeting minutes released Wednesday.
A summary of the meeting showed that Federal Open Market Committee participants were broadly unanimous that the central bank’s key overnight borrowing rate should be lowered in response to the weakness in the labor market.
But there was disagreement over whether there should be two or three total cuts this year, including the quarter-point increase approved at the Sept. 16-17 meeting.
“In considering the outlook for monetary policy, nearly all participants noted that this meeting’s lower target range for the federal funds rate positions the Committee to respond in a timely manner to potential economic developments,” the minutes read.
“Participants expressed a range of views on how restrictive the current monetary policy stance is and the future direction of policy,” the document added. “Most people judged it likely to be appropriate to further ease policy for the remainder of the year.”
one vote difference
Forecast materials released at the meeting illustrate a narrow split among the 19 officials participating in the FOMC meeting, with 12 of them voting.
The full Federal Open Market Committee voted 11-1 to cut the benchmark interest rate by a quarter of a percentage point, but participants differed on how aggressively they should lower interest rates through the remainder of 2025 and the coming years. This cut brings the federal funds rate down to its target range of 4% to 4.25%.
In the end, at each of the two remaining meetings this year, there was a slight majority, 10-9, in favor of a quarter-point cut. Forecast data suggests there could be one more rate cut in both 2026 and 2027 before funds rates settle into a long-term range around 3%.
However, the conference featured a variety of perspectives. The Sept. 16-17 session was the first for newly appointed Gov. Stephen Millan, who was sworn in just hours before it began.
Mr Milan identified himself as the only voter in favor of a more aggressive mitigation path. Minutes do not identify individual participants, but a statement after the meeting said Mr. Millan had voted against the measure and wanted a 0.5-point reduction instead.
Furthermore, in subsequent public appearances, Millan pointed out that he was the only “point” for a far more aggressive mitigation approach than other commissioners.
Labor market concerns
There appeared to be a wide range of opinions at the meeting, with some wanting a more cautious approach to cuts.
“Some participants noted that financial conditions, by some measures, suggested that monetary policy may not be particularly restrictive, and decided that a cautious approach was warranted when considering future policy changes,” the minutes said.
Officials are increasingly concerned about the state of the labor market, and although they still expect inflation to moderate to the Fed’s 2% target, they see the labor market as weakening as the threat of an upward trend in inflation continues.
“Participants generally indicated that the conference’s determination of the appropriate course of action was as follows:
“This action reflected a change in the balance of risks,” the minutes said, “in particular, most participants recognized that it was appropriate to move the target range for the federal funds rate to a more neutral setting, as most participants determined that downside risks to employment had increased over the course of the meeting and upside risks to inflation had decreased or not increased.”
Tariffs were a key part of the discussion, and there was a general understanding that President Donald Trump’s levies would not be a major source of sustained inflation after pushing up prices this year.
The committee’s sentiment on interest rates is consistent with the survey the Fed sends to primary dealers in financial markets, according to the summary.
“Nearly all respondents to the desk survey expected a 25 basis point cut in the target range for the federal funds rate at this meeting, and about half expected another rate cut at the October meeting,” the minutes said. “The majority of survey respondents expect at least two 25 basis point rate cuts by the end of the year, and about half expect three rate cuts by then.”
One basis point equals 0.01%, so a move of 25 basis points equals one-quarter of a percentage point.
In addition to an unusual level of diversity of opinion, policymakers are currently facing the fallout from the government shutdown. Data providers such as the Department of Labor and the Department of Commerce have ceased operations and are not releasing or collecting data during the impasse.
If the shutdown does not end by the time the FOMC meets on October 28-29, policymakers will essentially be acting blind on key economic indicators such as inflation, unemployment, and consumer spending. Market prices suggest the Fed is almost certain to cut rates at both its next meeting and its December meeting, but its decisions could be influenced by a lack of data.
Correction: A previous version incorrectly attributed market research opinions to Fed officials’ opinions. According to a survey of market participants, “about half” expected three cuts in total this year.
