The FOMC minutes for the October meeting revealed that most members judged that the monetary easing was enough to support growth. However, they continued to see downside to the economic outlook.

In October, the members voted to cut the Fed funds rate by -25 bps to a range of 1.5-1.75%. At the accompanying statement, the Fed removed the reference that it “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion”. This move led many to believe that the chance of a December cut is low. At the minutes, it is suggested that “most” members saw policy as “well calibrated”. Moreover, they agreed that future policy decisions will be data-dependent. Further rate cuts will come only when incoming data caused a “material change” in FOMC’s assessment of the economic outlook.

On the economic outlook, the members acknowledged that the employment condition remained strong. They also noted that household spending was “increasing at a strong pace”. Yet, they remained concerned that risks for growth are tilted to the downside. The members warned that “ongoing weakness in global economic growth” continued to “weigh on the domestic economy”, affecting “business investment, exports, and manufacturing production”.

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The members discussed various monetary policy tools that might help avert downside risks. The members saw limited room for further stimulus. They also talked about negative rates. Yet, this appears the tool that they are reluctant to use. The committee also discussed different forms of forward guidance and asset purchases. The members also discussed the possibility of interest rate targeting as part of balance sheet policies.

The market has now priced in a 45% chance of rate cut in April 2020. There is low chance for another rate cut by the end of this year as the Fed adopts a “wait-and-see” mode.

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