Federal Reserve officials saw future rate cuts reverting to slower pace

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Federal Reserve officials signalled support for a gradual pace of interest rate reductions after September’s larger-than-usual half-point reduction, a record of the meeting showed.

Minutes from the September meeting underscored that US central bankers were inclined to lower interest rates to a “neutral” setting that no longer crimps growth “over time”, suggesting little urgency to stick with the aggressive pace they opted for last month.

“Participants anticipated that if the data came in about as expected, with inflation moving down sustainably to 2 per cent and the economy near maximum employment, it would likely be appropriate to move toward a more neutral stance of policy over time,” the minutes said.

The larger-than-usual half-point cut announced by the Fed in September kicked off the central bank’s first easing cycle since 2020, and took the benchmark rate to 4.75-5 per cent.

Alongside the cut, the Fed also published a new “dot plot” of officials’ individual rate projections, showing most saw another half-point worth of cuts this year, followed by more in 2025 when rates were estimated to drop to 3.25-3.5 per cent.

September’s rate decision was not unanimous, with Michelle Bowman becoming the first governor to oppose a decision since 2005. She argued that a more “measured” quarter-point cut would “avoid unnecessarily stoking demand”.

The minutes emphasised how close a call the last decision was, with some participants expressing a preference for a quarter-point cut and a “few others” indicating they could have supported that move.

“Several participants noted that a 25 basis point reduction would be in line with a gradual path of policy normalisation that would allow policymakers time to assess the degree of policy restrictiveness as the economy evolved,” the minutes said.

It would also signal “a more predictable path of policy normalisation”, a few people said, according to the minutes.

Top Fed officials have since then signalled little urgency for another half-point cut at the next meeting in November, especially after a bumper jobs report for September.

That report quelled fears that the US was heading for recession and boosted the odds that the Fed would get inflation back to its 2 per cent target with minimal job losses.

In an interview with the Financial Times this week, New York Fed president John Williams said officials’ projections for smaller cuts in the coming meetings was a “very good base case”.

Chair Jay Powell has also said that the policy-setting Federal Open Market Committee was “not a committee that feels like it’s in a hurry to cut rates quickly”.

On Wednesday, Dallas Fed president Lorie Logan also backed the Fed cutting rates “gradually”, citing “meaningful risk that inflation could get stuck above our 2 per cent goal”.

The Fed will next meet just days after the US presidential election and then again in mid-December. The central bank will on Thursday receive its final inflation report before the country votes.

Economists forecast that the annual inflation rate in the consumer price index fell to 2.3 per cent last month, the lowest level since February 2021.

Services-related inflation has been more stubborn, keeping the “core” measure, which strips out volatile food and energy items, more elevated. That gauge is expected to have steadied at 3.2 per cent in September.