• FOMC Minutes show that the Fed is leaning towards rate cuts. 
  • Officials remain divided over pace and size of future rate cuts. 
  • Government shutdown complicates economic performance and outlook. 

FOMC meeting minutes from the September meeting showed that the Fed is committed to lowering rates by year’s end following concerns of a weaker labor market. 

The minutes also revealed that the Fed remains divided over the number and size of future rate cuts. 

Rate Cut Decision and Divisions 

The FOMC voted 11-1 to cut the Fed Funds rate by 25 basis points in their September meeting, bringing interest rates to 4.25%. Most FOMC officials supported the decision, stating rising risks to the labor market.  ⁽¹⁾  

However, opinions remain divided on future rate cuts. A majority favored two more 25 basis rate cuts in October and December, while others expect one more rate cut in 2025 and 2026, setting a neutral rate of 3%.  

The newly appointed Fed Governor Stephen Miran pushed for a 50-basis point rate cut in September, a stance he repeated later in his speeches. ⁽²⁾   

Labor Market Weakness 

FOMC officials also stated growing concerns about labor market weakness, stating risks had risen. The minutes also stated that inflation risks to the upside have been subdued, as this shift in risk balance prompted the FOMC to move towards a more neutral policy stance.  

However, officials urged caution, as financial conditions might not be restrictive enough to warrant rate cuts. ⁽³⁾  

Inflation and Tariff Concerns 

Even though inflation remains muted, it remains a concern for policymakers, as most FOMC officials highlighted possible upside risks for inflation due to global uncertainties, especially Trump’s tariff-driven inflation.  

The officials also warned that progress on bringing inflation down to 2% could stall, raising inflation expectations in the long-term. Meanwhile others stated that tariffs might have a more short-term effect. ⁽⁴⁾  

Government Shutdown Drama 

The US government shutdown brings complications for the Fed’s economic outlook. 

With key economic data departments like the Bureau of Labor Statistics and Commerce suspending operations, policymakers lack the data to assess the economy’s performance before the Fed’s upcoming October meeting. However, financial markets continue to price in rate cuts in October and December. ⁽⁵⁾ 

Sources: ⁽¹⁾ ⁽²⁾ ⁽³⁾ ⁽⁴⁾ Federal Reserve, ⁽⁵⁾ CNBC