FOMC minutes hint at signs of discord

The minutes from the latest Federal Open Market Committee’s policy-setting meeting highlighted some disagreements between members as to whether the Fed should hold interest rates steady or cut them even faster.

On Sept. 17-18, the FOMC voted seven to three in favor of cutting the federal funds target range by 25 basis points to 1.75% to 2.00%.

The minutes, released Wednesday afternoon, showed that two hawks, Esther L. George of Kansas City and Eric Rosengren of Boston wanted to keep the target at 2.00% to 2.25% while James Bullard of St. Louis wanted to lower the range to 1.50% to 1.75%.

Voting for the ¼-point cut were Jerome Powell, John Williams, Michelle Bowman, Lael Brainard, Richard Clarida, Charles Evans and Randal Quarles.

The FOMC also looked ahead to the next meeting.

“In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2% inflation objective,” the minutes showed. “This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

Powell: Despite risks, U.S. economy in a good place
At a Federal Reserve Bank of Kansas City event earlier on Wednesday, Federal Reserve Chair Jerome Powell said the U.S. economy is in a good place.

Federal Reserve Board Chairman Jerome Powell

“Unemployment is at a half-century low, and inflation is running close to, but a bit below, our 2% objective. While not everyone fully shares economic opportunities and the economy faces some risks, overall, it is — as I like to say — in a good place,” Powell said at a “Fed Listens” public event.

“People from low- and moderate-income communities tell us that this long recovery, now in its 11th year, is benefiting them and their neighbors to a degree that has not been felt for many years,” Powell said. “Employers are partnering with community colleges and nonprofit organizations to offer training. And people who have struggled to stay in the workforce in the past are getting new opportunities.”

He said the Fed’s job is to keep the economy and job growth strong for as long as possible.

“While we believe our strategy and tools have been and remain effective, the U.S. economy, like other advanced economies around the world, is facing some longer-term challenges — from low growth, low inflation, and low interest rates. While slow growth is obviously not good, you may be asking, ‘What's wrong with low inflation and low interest rates?’ Low can be good, but when inflation — and, consequently, interest rates — are too low, the Fed and other central banks have less room to cut rates to support the economy during downturns,” he said.

He said the Fed was examining strategies to allow it to “symmetrically and sustainably achieve 2% inflation. Doing so would help prevent inflation expectations among consumers, businesses, and investors from slipping too low, as they appear to have done in several advanced economies. More-firmly anchored expectations, in a virtuous circle, would help keep actual inflation around our target, thus preserving our ability to change interest rates as appropriate to meet our mandate. We are also looking at whether our existing monetary policy tools will be adequate when the next downturn comes. Finally, we are asking whether our communications practices can be improved to better support the effectiveness of our policy.”

Wednesday’s economic data
Sales of merchant wholesalers, except manufacturers’ sales branches and offices, were unchanged in August, the Labor Department reported on Wednesday. Wholesale inventories rose 0.2% in August. Economists surveyed by IFR Markets had expected inventories to have risen by 0.4% and sales to have been up 0.2%.

The August inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.36. The August 2018 ratio was 1.28.

The Labor Department also reported that the number of job openings was little changed at 7.1 million in August. Economists surveyed by IFR Markets had expected the JOLTS rate to come in at 7.19 million in August.

Over the month, hires edged down to 5.8 million and separations were little changed at 5.6 million. Within separations, the quits rate was little changed at 2.3% and the layoffs and discharges rate was unchanged at 1.2%.

The job openings rate was 4.4%. The number of job openings was little changed for total private and for government.

The number of hires edged down to 5.8 million (-199,000) in August. The number of hires edged down for total private (-219,000) and was little changed for government.

For reprint and licensing requests for this article, click here.
Monetary policy FOMC Federal Reserve
MORE FROM BOND BUYER