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November 20, 2019 Blog 2 min read
The release of the October FOMC minutes held relatively little in terms of new news, but provided some insight into how the Committee’s mindset could shape the direction of monetary policy in the months ahead.
Federal Reserve Building Today’s release of the minutes from the meeting of the Federal Open Market Committee (FOMC) held on October 29-30 held relatively little in terms of new news, but provides some insight into how the Committee’s mindset could shape the direction of monetary policy in the months ahead.

Of particular note were the indications that there may be a growing divide within the Fed about the need for additional cuts. While two members voted outright against the October reduction, others who voted in favor acknowledged that their decision was not without reservation. Much of this growing divide appears to be driven by their respective assessments of downside risks to the economy and the inflation outlook.

While acknowledging that economic growth remains moderately positive and labor market conditions have been quite strong, policymakers also took note of the risks to that outlook, which remain predominantly skewed to the downside. The impact of the global slowdown will certainly have some effect on the domestic economy, and the risk associated with weakness in the manufacturing sector brought about largely by the lingering trade dispute with China creates a wild card that seems more likely to be a near-term negative.

Of particular note is inflation, which remains below the Fed’s target and is expected by much of the Committee to remain weak for the foreseeable future. Previously, FOMC members have hinted at the potential to let inflation run to the high side given the extended period of lower-than-desired inflation in recent years. The fact that actual inflation and inflation expectations remain quite low would seem to support that view. Conversely, the potential inflationary impact of tariffs shouldn’t be overlooked, and could push consumer inflation readings higher in the coming months if previously announced increases are implemented.

All things considered, it appears clear that policymakers are content to keep rates low for the time being, at least until there is greater clarity on trade policy and a more meaningful, sustained rebound in the domestic manufacturing sector emerges. Even with unemployment near half-century lows, the moderate growth pace and limited inflation pressures seem to be sufficient to limit the potential for a reversal in policy any time soon. The question is whether additional cuts will be needed. Given the disagreement on that point within the FOMC, further deterioration in economic or financial conditions would be needed. With recent indications of stabilization in manufacturing, improvement in the service sector, and solid job gains, the clearest path forward for the Fed would appear to be standing pat.
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