U.S. FOMC Meeting Minutes

Downside Risks Concern Participants

• The Federal Open Market Committee's (FOMC) September meeting minutes indicated that while participants saw the baseline economic outlook as positive, it required a "somewhat more accommodative path" for monetary policy. This was mainly due to the intensification of downside risks. Particularly, trade tensions and "adverse developments in the geopolitical and global economic spheres."
• Participants noted that the global growth slowdown and trade uncertainty were the main factors weighing on business investment, exports, and manufacturing production. There were concerns that the uncertain outlook and continued weaker investment could lead to a pull back in hiring leading to weaker income and consumption growth.
• Some participants also adjusted down their longer-run unemployment rate due to muted inflationary pressures and moderate wage growth despite a tight labor market and strong consumption growth. 
• On the inflation front, participants continued to see inflation running below the 2% inflation target. However, some observed that the recent increase in inflation confirmed their view that the weakness earlier in the year was indeed transitory. 
• While most participants agreed that a 25bps reduction in the target range was needed, there was disagreement around the table. Some felt that the existing range was appropriate and that uncertainties would not "derail the expansion". On the flipside, others preferred a 50bps cut in the federal funds rate. They contended that more stimulus would "more appropriately recognize important recent developments, such as slowing job gains, weakening investment, and continued low values of market based measures of inflation compensation."
• Participants also acknowledged the volatility in the repo markets. They agreed that the Committee should discuss the appropriate level of reserve balances and that any decision on altering the pace of balance sheet expansion should be "clearly distinguished from past large-scale asset purchase program."

Key Implications

• FOMC participants continued to be concerned about the impact of downside risks, specifically that of trade uncertainty and global growth, on the U.S. economy. Overall, in order to maintain a favorable outlook for the U.S. economy, most participants agreed that more monetary policy support was required.
• However, there appeared to be a divergence of views at the table. Some participants judged a cut wasn’t warranted as they believed that uncertainty would not derail the expansion and that a reduction in rates would leave the Fed with less room to maneuver in the event of a future shock. At the same time, there were others who thought more stimulus would be appropriate. 
• Looking ahead, with recent manufacturing data moving further into negative territory, we may see some more agreement at the table in the meetings later this month as those with a hawkish-tilt move into the dovish camp.      

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