The minutes released yesterday from the Fed meeting on 18th September showed that the members who called for a rate cut, that is 7 of the 10 voters, pointed to weakness in global growth, trade uncertainty, weak manufacturing and business fixed investment. Also, the weakness in inflation was cited “as justifying a reduction of 25bp in the federal funds rate”. However, there was a push back in the minutes against a more aggressive cut;
“A couple of participants suggested that, if it decided to provide more policy accommodation at the present juncture, the Committee might be taking out too much insurance against possible future shocks, leaving monetary policy with less scope to boost aggregate demand in the event that such shocks materialized. A few of the participants favouring an unchanged target range for the federal funds rate also expressed concern that an easing of monetary policy at this meeting could exacerbate financial imbalances.”
These minutes, of course, are a bit dated and since the meeting, we have seen further weakness in the ISM manufacturing index and the non-manufacturing index and a further slowing of employment combined with a further deterioration of international indicators.
Finally, the Fed’s commentary on the funding market pressure that happened on September 16th, 17th, and 18th was not particularly insightful, as the minutes largely offered up a play-by-play of the events up to the FOMC announcement on the 18th, which markets already lived through. There was some forward-looking conversation on the path of the balance sheet, which after Powell’s speech yesterday, which we commented about in yesterday’s daily, now appears very backwards-looking.