U.S. FOMC Meeting Minutes (September 17-18, 2024)

Fed minutes suggest gradual easing of monetary policy to continue 

• The minutes from the September 17-18th Federal Open Market Committee (FOMC) meeting released today indicate that while Committee members recognized inflation had been easing, they still saw both GDP growth and the labor market as solid. 
• Almost all Committee members "judged that recent monthly [inflation] readings had been consistent with inflation returning sustainably to 2 percent." Participants also noted that "the labor market was now less tight than it had been just before the pandemic." They agreed that "labor market conditions were at, or close to, those consistent with the Committee's longer-run goal of maximum employment".
• On the policy decision, a substantial majority supported lowering the target range for the federal funds by 50 basis points, observing that this would "bring it into better alignment with recent indicators of inflation and the labor market". Some participants would have preferred a 25 basis point reduction, and others indicated they could have supported such a decision, preferring a more gradual path. 
• With respect to future decisions, "participants anticipated that if the data came in about as expected … it would likely be appropriate to move toward a more neutral stance of policy over time," less definitive than the previous minutes which pointed to a reduction in the target rate at the next meeting. Furthermore, participants emphasized it was important to communicate that the recalibration at this meeting should not be interpreted as a signal that the pace of policy easing would be more rapid than participants' assessment of the appropriate path.  

Key Implications

• Today's minutes will temper somewhat expectations for the FOMC to follow-up September's 50 basis point cut with another. The minutes characterize the larger-than-usual cut as a recalibration of policy that was too restrictive, and show that a minority would have preferred a smaller reduction in the policy rate. Moreover, the minutes show that the September decision is not a sign that the FOMC is overly concerned about economic weakness or a signal of faster rate cuts to come. 
• Even before last week's jobs report, which came in above expectations and left most observers and analysts boosting their assessment of the labor market, FOMC participants felt that the labor market was solid and that the risks around the inflation forecast were balanced. The pace of rate cuts going forward is therefore likely to continue to be gradual if labor markets and inflation continue to develop as expected.    

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