According to the minutes of the most recent two-day meeting, the U.S. Federal Reserve only decided to lower interest rates at its December meeting following a highly complex discussion on the current dangers facing the U.S. economy.
According to the minutes made public on Tuesday, even some of those who favored the rate cut admitted that "the decision was finely balanced or that they could have supported keeping the target range unchanged," given the various risks facing the U.S. economy.
Six officials categorically rejected a cut in the economic predictions that were made public following the December 9-10 meeting, and two of them dissented as Federal Open Market Committee voting members. In the end, "most participants" favored a cut, with "some" claiming that it was a sensible long-term plan "that would help stabilize the labor market" following a recent slowdown in job growth.
Several others "expressed concern that progress towards the committee's 2% inflation objective had stalled." "Some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting," the minutes stated regarding a discussion in which officials disagreed on both tighter and looser monetary policy, an uncommon result for the central bank that has now occurred at two meetings in a row.
The Fed's benchmark overnight interest rate was lowered to a range of 3.5% to 3.75% by the quarter-point rate cut that was approved in December.
This was the central bank's third consecutive action as officials agreed that a slowdown in monthly job creation and rising unemployment warranted slightly less restrictive monetary policy.
However, the Fed's views on how much more to cut became increasingly divided as rates dropped and got closer to a neutral level that neither discourages nor encourages investment and expenditure.
Only one rate cut is anticipated for the upcoming year, according to new projections released following the December meeting, and the language in the new policy statement suggested that the Fed would probably hold off until fresh data demonstrated that either inflation is once again declining or unemployment is rising more than expected.
The outlook and the opinions of policymakers about risk management continued to be shaped by the absence of official data throughout the 43-day government shutdown, a vacuum in knowledge that is currently unfilled.
The arrival of a significant amount of labor market and inflation data over the upcoming intermeeting period "suggested that the arrival of a considerable amount of labor market and inflation data over the coming intermeeting period would be helpful on making judgments about whether a rate reduction was warranted."
Jobs and consumer pricing statistics for December will be released on January 9 and January 13, following the regular release timetable, as part of the ongoing data catch-up. Investors presently anticipate that the Fed will maintain its target rate at its upcoming meeting on January 27-28.
