Fed cut federal funds rate by -25bps to 1.75-2.00% as widely expected. The decision was made by 7-3 vote. But note that James Bullard wanted to cut -50bps to 1.50-1.75%. Esther L. George and Eric S. Rosengren preferred to stand pat.

Full statement below.

Federal Reserve Issues FOMC Statement

Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

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 percent inflation objective. 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.

Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.

Chicago Fed President Charles Evans said, “front-loading is important to speed up the necessary tightening of financial conditions, as well as for demonstrating our commitment to restrain inflation, thus helping to keep inflationary expectations in check.”

As for the pace of tightening, he said, “I’m expecting that before December, we will have completed in any 50s and have put in place at least a few 25s.”

“If we need to, we will be well positioned to respond more aggressively if inflation conditions do not improve sufficiently or, alternatively, to scale back planned adjustments if economic conditions soften in a way that threatens our employment mandate,” Evans explained.

Boston Fed President Eric Rosengren said on Wednesday that “significant slack remains in the economy”. “Substantial improvement” is needed to Fed to begin tapering. “It is quite possible that we’ll see those conditions as we get to the latter half of the year,” he said.

“But right now what we have is one really strong employment report, one quarterly strong GDP report,” Rosengren added. “And so I think it’s premature right now to focus on the tapering.” He emphasized, “the Fed has no desire to surprise markets.”

Separately, Vice Chair Richard Clarida told CNBC, “we’re still a long way from our goals, and in our new framework, we want to see actual progress and not just forecast progress.” Asked about when the Fed should start talking about tapering, he said, “we don’t think so right now.”

New York Fed President John Williams said together that “what we don’t know is what the shape or timescale of the recovery will be”. It’s going “to be some time before we have a clearer view of the effects on other industries, including autos, higher education, manufacturing, and professional services.”

“Amid all the change we’re experiencing, you can be assured of one thing: our unwavering commitment to limit the economic damage from the pandemic and foster conditions for a strong and sustained recovery,” he said.