Divided FOMC saw another two rate cuts by the end of 2025

Federal Reserve officials met in September with a strong inclination to lower interest rates, as revealed in the meeting minutes released on Wednesday. The main point of contention among participants seemed to be the number of rate cuts that were imminent. The meeting summary indicated a near consensus among members of the Federal Open Market Committee that a rate cut was necessary due to weaknesses in the labor market.

The participants were divided, however, on whether there should be two or three total reductions this year, including the quarter percentage point cut that was approved at the September meeting. The minutes stated that most participants believed it would be appropriate to further ease policy over the remainder of the year to respond to potential economic developments.

Projection materials released at the meeting highlighted the close split among the officials, with a 10-9 majority favoring quarter-point cuts at each of the remaining meetings this year. The newly appointed Governor Stephen Miran stood out as the dissenting vote, advocating for a more aggressive half-point cut.

Concerns over the state of the labor market were a significant topic of discussion at the meeting, with officials noting a shift in the balance of risks. While some participants preferred a cautious approach to rate cuts, others were more concerned about the weakening labor market and upside threats to inflation.

Tariffs were also a focal point of the discussion, with the general sentiment being that President Donald Trump’s levies would not have a lasting impact on inflation. The committee’s views on rates aligned with a survey of primary dealers in financial markets, with the majority expecting at least two 25 basis point cuts by year-end.

The ongoing government shutdown presented a challenge for policymakers, as key economic data from agencies like the Labor and Commerce departments were not being released or collected. This lack of data could influence the Fed’s decision-making process at the upcoming meetings in October and December.

In conclusion, the meeting minutes revealed a range of opinions among Federal Reserve officials regarding the future path of monetary policy. The decision to lower interest rates was largely driven by concerns over the labor market and inflation, with some members advocating for a more aggressive approach to rate cuts. The uncertainty surrounding the government shutdown added another layer of complexity to the Fed’s decision-making process moving forward.