WASHINGTON (AP) – Federal Reserve officials were sharply split last month when they decided to lower their key interest rate for the second time this year. The discussion at the September meeting, published Wednesday, showed that the majority of the Fed Officials considered a cut in the second quarter to be appropriate in the face of growing economic uncertainty due to trade tensions and a slowing global economy.
However, some participants said they advocated a reduction by half a point. They said the stronger rate cut would reduce the risk of a potential recession.
However, a third group of "multiple participants" argued that the Fed should not lower interest rates at all, as the current outlook for the economy has hardly changed since the last central bank meeting.
This rare tripartite split in the Fed's top policy panel suggests that Fed Chairman Jerome Powell may face difficulties in reaching consensus on future interest rate moves.
Many investors hope for the Fed's willingness to cut interest rates for the third time this year, when it meets again at the end of this month.
The key rate cut in September, which followed a cut in July and was the first in a decade, was adopted at 7 to 3. Two Fed officials, Esther George, president of the Kansas City Fed regional bank, and Eric Rosengren, president of the Boston Bank, were opposed to no cuts being made.
James Bullard, president of the St. Louis Regional Bank, disagreed on the grounds that the threats to the economy were large enough to require a larger cut.
However, the protocol showed that there were other Fed officials who disagreed with lowering the quarterly rate, even though they were not strong enough to argue.
According to custom, the Fed does not cite the Fed officials named in the minutes, who were released after a usual three-week delay after a meeting.
The minutes showed officials also discussed the turbulence of short-term funding. The so-called repo market occurred the week the central bank came together.
In a statement this week, Powell has announced that the Fed will take action to deal with this turmoil.
The protocol showed that among the options discussed there would be an opportunity to grow the Fed's balance sheet again. The Fed had reduced its holdings, which had risen to a high of $ 4.5 trillion following the Great Recession as it conducted several rounds of bond purchases to lower long-term interest rates and boost the economy.
Bond purchases were termed "quantitative easing". Powell said that several options would be weighed to give more stability to short-term funding markets. However, efforts should not be seen as a new round of quantitative easing.