Federal Reserve officials viewed their interest-rate cut last month as insurance against too-low inflation and the risk of a deeper slump in business investment stemming from uncertainty over President Donald Trump’s trade war.
“Members who voted for the policy action sought to better position the overall stance of policy to help counter the effects on the outlook of weak global growth and trade policy uncertainty, insure against any further downside risks from those sources, and promote a faster return of inflation” to the 2% target, according to minutes of the July 30-31 Federal Open Market Committee meeting, released Wednesday in Washington.
The Fed cut rates for the first time since 2008, a move Chairman Jerome Powell called a “mid-cycle” adjustment. The minutes described the quarter-point cut as part of an “ongoing reassessment” of the policy path that began in late 2018.
“Members generally agreed that it was important to maintain optionality in setting the future target range for the federal funds rate,” the minutes said, indicating the committee didn’t view the cut as part of an extended cycle of reductions.
The Fed went out of its way to highlight the reasons for the cut in three bullet points, citing signs of economic deceleration, risk management concerns and too low inflation. The minutes said participants noted that “trade uncertainty would remain a persistent headwind for the outlook.”
FOMC participants said they still viewed a sustained U.S. economic expansion, strong labor markets and inflation near the target “as the most likely outcomes.”
The minutes began with a lengthy discussion of the Fed’s policy strategy review, which indicated that officials aren’t ruling out any options, including an expansion of their policy toolkit.
Since the last meeting, the dollar has strengthened as the global economic outlook dimmed, raising the prospect for rate cuts abroad. Yields on U.S. 10-year Treasury notes have plunged toward record lows. Investors expect as many as three more quarter-point rate cuts this year to offset increasing downside risks, including a move next month.
Source : Bloomberg