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According to the minutes of the Federal Reserve's meeting released on Wednesday, the Federal Open Market Committee (FOMC) reaffirmed the deterioration of the labor market but expressed increased concern about the implications of rate cuts for inflation processes. Members showed "significantly differing opinions" regarding actions at the December meeting.
The document states that during the monetary policy discussions at the meeting, participants emphasized that inflation has risen since the beginning of the year and remains moderately high. Members also noted that current indicators point to moderate expansion in economic activity. They acknowledged that job growth has slowed this year, and the unemployment rate has slightly increased, although it remained low until August. Participants believe that more recent data align with this trend. Furthermore, they concluded that the risks of employment decline have increased in recent months.
Against this backdrop, many members supported reducing the target range for the federal funds rate at the current meeting, with some approving such a decision while being open to maintaining the range, and a few opposing a cut.
Those in favor of or open to considering a cut argued that it is justified, as the risks of employment decline have increased in recent months, while the risks of rising inflation have decreased or remained unchanged since the beginning of the year.
Conversely, those advocating for keeping the rate expressed concerns that progress toward the Committee's inflation target has stalled this year, as inflation metrics have increased, or that greater confidence is required regarding inflation moving toward the 2% target, noting that long-term inflation expectations may strengthen if inflation does not return to 2% within the prescribed timeframe.
Once again, one participant agreed on the need to transition to a more balanced monetary policy but preferred a 0.5-percentage-point cut.
During the discussion on future directions for monetary policy, FOMC members expressed differing views on the degree of current monetary policy tightness and the upcoming December meeting regarding a potential rate cut.
The minutes indicated that a majority voted to further lower the target range for the federal funds rate, noting that this would be appropriate as the Committee transitions to a more neutral policy stance. However, some of these participants noted that they do not consider it advisable to implement another 25 basis-point cut at the December meeting.
Several participants assessed that further reducing the target range for the federal funds rate in December could be fully justified if the economy develops as they forecast during the upcoming inter-meeting period. Many members noted that, based on their economic outlook, it would likely be prudent to leave the target range unchanged until the end of the year.
All voting members agreed that monetary policy should not follow a predetermined path and will depend on a wide range of incoming data, changing economic forecasts, and the balance of risks.
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