WASHINGTON (Reuters) – The Federal Reserve’s sweeping launch on Wednesday of what are expected to be more interest rate cuts this year and next may have won the full support of only a narrow majority of the central bank’s 19 policymakers, a review of their rate projections suggests.
It’s a tougher decision to make than the only formal objection from Fed Governor Michelle Bowman suggests. As many as nine of the Fed’s 19 officials may also have objected to some degree, or only reluctantly followed through, according to analysts who analyzed the decision over the next 24 hours.
A fuller account of the meeting will not be available for three weeks, when the Fed releases the minutes of its September 17-18 meeting, at which it cut the benchmark rate by half a percentage point to 4.75%-5.00%.
Most analysts had expected a rate cut of only a quarter point.
But there were already signs that this week’s decision was different from the one taken at the Fed’s last meeting in July, when Fed Chairman Jerome Powell said “all 19” participants supported holding the policy rate steady.
A clue came from Powell himself, during his post-meeting press conference.
“There was a lot of discussion back and forth, good diversity … a great discussion today,” Powell said. “I think there was also broad support for the decision that the committee voted on.”
Another decision came from Bowman’s dissent, the first by a Fed governor in 19 years, after at least a year of speeches in which she argued for maintaining tight monetary policy for longer.
But there were others.
Seven central bankers expect the policy rate to be between 4.5% and 4.75% by year-end, suggesting they anticipate only one quarter-point rate cut at one of the Fed’s final two meetings of the year, according to a graph of policymakers’ expectations for the path of rates, known as a “dot plot.”
Two of them indicated that they did not expect any change in the policy rate for the rest of the year.
Those projections could include some of those who agreed to start on a large scale, with the idea of pausing later. But analysts said it likely indicates that a number of policymakers — not just Bowman — would have preferred something smaller this week.
The decision to implement a more aggressive rate cut this time could open the way for the central bank to continue cutting rates further and faster than many policymakers, at least for now, appear to support.
“Policymakers appear to have pushed through a deeper taper,” Goldman Sachs economists wrote, as they tore apart an earlier forecast of a series of slower rate cuts in favor of what they now see as a more likely outcome: consecutive quarter-point cuts at each of the Fed’s next six meetings, through June.
Tim Duy of SGH Macro Advisors expects the Fed will need to cut another half-point before the end of the year to cushion the economy, although he argues that many policymakers now appear not to believe that the employment situation is weakening fast enough to merit even an initial half-point cut.
Many “have only reluctantly supported a 50 basis point cut,” Duy said, pointing to the narrow division in the “dot chart” between the seven that expect just one additional quarter-point cut this year, and the nine that see two more such cuts.
“Powell pushed almost everyone to cut rates further, but it seems the price he paid was complacent risk-taking in the labor market,” Duy said, noting that Powell did not address labor market risks at his press conference. In its policy statement, the Fed said the risks to its employment and inflation goals were “roughly balanced.”
Deutsche Bank economists also noted the split in the dot plot and Powell’s use of the word “broad” to describe domestic support for the move.
All of this, they said, “reinforces the idea that this was a close decision.”
(Reporting by Ann Saphir; additional reporting by Howard Schneider, Lindsay Dunsmuir and Michael S. Derby; editing by Andrea Ricci)
