Federal Reserve looks to cut rates again amid inflation/jobs trade-off

Federal Reserve officials expect to lower interest rates again this year, noting the downside risks to employment were "elevated and had increased", minutes released on Wednesday showed.

At its September meeting, the Federal Open Market Committee lowered the fed funds rate by a quarter point to a target range of 4.00%-4.25%.

Minutes from the meeting showed officials felt a reduction would leave the Fed "well positioned to respond in a timely way to potential economic developments."

Officials justified the cut by noting "a shift in the balance of risks," while "most judged that it likely would be appropriate to ease policy further over the remainder of this year."

But FOMC participants expressed a range of views about the degree to which the current stance of monetary policy was restrictive and about the likely future path of policy, the minutes said.

A few officials stated there was merit in keeping the federal funds rate unchanged at the meeting or that they could have supported such a decision, the statement added.

New projections released following the meeting showed officials expected two additional quarter-point cuts by year's end, according to their median estimate.

But they also pointed to division on the committee, as six of the 19 participants projected one or no cuts in 2025.

Officials generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased.

However, the FOMC does not see a "sharp deterioration in labour market conditions," with participants generally expecting that job market conditions would be little changed or would soften modestly.

But uncertainty remained about the inflation effects of this year's increase in tariffs, though most participants expected these effects to be realised by the end of next year.

The minutes stated the majority of participants emphasized "upside risks to their outlooks for inflation, pointing to inflation readings moving further from 2%, continued uncertainty about the effects of tariffs, the possibility that elevated inflation proves to be more persistent than currently expected even after the inflation effects of this year's tariff increases fade, or the possibility of longer-term inflation expectations moving up after a long period of elevated inflation readings."

The vote was not unanimous. Newly appointed board member Stephen Miran backed a larger 50 basis points cut.

The minutes showed Miran argued for a bigger rate reduction in light of further softening in the labour market over the first half of the year and underlying inflation that in his view was "meaningfully closer" to 2% than was apparent in the data.

Miran also expressed the view that additional policy easing was also appropriate to reflect that the neutral rate of interest had fallen due to factors such as increased tariff revenues that had raised net national savings and changes in immigration policy that had reduced population growth.