Fed’s 50bps rate cut backed by majority, but divisions emerge on future easing pace

Fed’s decision to cut interest rates by 50 basis points last month was backed by a “substantial majority,” but the minutes of the meeting revealed a more intense debate among policymakers. Only Governor Michelle Bowman dissented, while others showed mixed views on the appropriate pace of easing.

Some participants expressed that a 25bps cut would have been more suitable given inflation remains elevated, economic growth is stable, and unemployment is low. These participants argued that a smaller reduction could support a “more gradual path” for policy normalization, allowing time to assess the economy’s response. A few also noted that a 25bps move would signal a “more predictable path” to the markets.

Looking ahead, the split in views deepens. Nearly all participants agreed that the upside risks to inflation had diminished, while most observed increasing downside risks to employment. However, the timing and extent of further rate cuts remain debated.

Some participants stressed that waiting too long to ease policy could “unduly weaken” economic activity and employment, with significant costs if such a weakening were “fully under way”. In contrast, others warned that easing “too soon or too much” could risk “stalling or a reversal of the progress on inflation”. Given the uncertainty regarding the “longer-term neutral rate” and its implications, some said it’s “appropriate to reduce policy restraint gradually”.

Full FOMC minutes here.