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Fed minutes reveal lively September debate about whether first rate cut should be big or small

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Fed minutes reveal lively September debate about whether first rate cut should be big or small

There was a divide within the Federal Reserve about whether its first interest rate cut in more than four years should be big or small, according to minutes from the central bank’s September meeting released Wednesday.

A “substantial majority” of Fed officials supported lowering rates by 50 basis points at the last meeting, but “some” would have preferred to have lowered by 25 basis points and “a few others indicated that they could have supported such a decision,” the minutes read.

Those who argued for a 25 basis point reduction noted that inflation was still somewhat elevated, while economic growth was strong and unemployment low.

Several said a smaller cut would line up more with a gradual reduction in the policy rate that would be more predictable and allow more time to assess any impacts on the economy.

Those who argued for a jumbo-sized cut said a 50 basis point move would help sustain strength in the economy and the job market while continuing to bring down inflation.

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Some even said there had been a case for a 25 basis point rate cut at the previous meeting in July, and that recent data offered even more evidence that inflation continues to drop while the labor market cools.

Some of this internal division at the Fed was made public on Sept. 18 as the decision to cut by 50 basis points was announced, with Fed governor Michelle Bowman dissenting and saying she preferred 25 basis points.

No Fed official has voted against a policy decision in two years, matching one of the longest such streaks in the past half-century. Moreover, no Fed governor has dissented on a rate decision since 2005.

The Fed’s rate-setting committee was also almost evenly split on the number of additional rate cuts expected this year, with seven policymakers favoring one additional 25 basis point rate cut before year-end and nine members favoring 50 basis points of additional easing. Two policymakers expected no more rate cuts.

Fed Chair Jerome Powell, in a press conference with reporters last month, acknowledged the dissent but also said there was “broad support” for the cut and a “lot of common ground” among his fellow policymakers.

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Il presidente della Federal Reserve Jerome Powell tiene una conferenza stampa dopo una riunione di due giorni del Federal Open Market Committee a Washington, Stati Uniti, 18 settembre 2024. REUTERS/Tom Brenner

Fed Chair Jerome Powell, at last month’s press conference. (REUTERS/Tom Brenner) (Reuters / Reuters)

In the week since the decision, several policymakers have offered public support for a jumbo rate cut of 50 basis points, citing progress on inflation and a cooling job market.

Atlanta Fed president Raphael Bostic has said that residual concerns might have led him to trim by a smaller 25 basis points at the September policy meeting, but that would have ignored a recent cooling in the job market.

Minneapolis Fed president Neel Kashkari said he voted in favor of cutting by 50 basis points because “the balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate.”

Chicago Fed president Austan Goolsbee also said he was “comfortable” with a 50 basis point cut, viewing it “as a demarcation” that the central bank is now back to thinking as much about achieving maximum employment as it is price stability.

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But a stronger-than-expected jobs report released last week now has analysts wondering whether the central bank will curtail rate cuts or if it moved too quickly with a 50 basis point reduction. There are also worries that inflation could be re-elevated as a concern.

Fed officials will get a fresh reading on inflation Thursday when the Consumer Price Index is due out. That measure is expected to keep in line with what officials want to see.

Economists expect core inflation — which eliminates volatile food and energy prices the Fed can’t control — held steady on an annual basis in September at 3.2% from the same level in August. Month over month, CPI is expected to have grown by 0.2%, compared with 0.3% in August.

Some Fed officials are urging a gradual path to cuts as they look to balance downside risks to unemployment with continuing to bring down inflation.

Dallas Fed president Lorie Logan became the latest official to voice that view on Wednesday, saying in a speech that “a more gradual path back to a normal policy stance will likely be appropriate from here to best balance the risks to our dual-mandate goals.”

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Powell made it clear in remarks on Sept. 30 that the central bank isn’t in a “hurry” to bring interest rates down and would prefer smaller cuts.

He also reiterated that the consensus of Fed officials outlined at the September meeting was for two more 25 basis point rate cuts this year, saying, “it wouldn’t mean more fifties.”

Other officials, including New York Fed President John Williams, St. Louis Fed president Alberto Musalem, and Chicago Fed president Austan Goolsbee, all have said recently they favor bringing interest rates lower “over time.”

At the September meeting, according to the minutes, officials said it’s important to communicate that lowering rates should not be interpreted to mean the Fed believes the economic outlook has soured or that the Fed will lower rates more rapidly than the path laid out.

“Some participants emphasized that reducing policy restraint too late or too little could risk unduly weakening economic activity and employment. A few participants highlighted in particular the costs and challenges of addressing such a weakening once it is fully under way,” the minutes read.

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Almost all participants saw upside risks to the inflation outlook as having diminished, while downside risks to employment were seen as having increased.

While Fed officials generally viewed the job market as solid, some said that the recent pace of job increases had fallen short of what was required to keep the unemployment rate stable on a sustained basis, assuming a constant labor force participation rate.

Many said that evaluating the job market had been challenging, with increased immigration, revisions to reported payroll data, and possible changes in the underlying growth rate of productivity.

Several participants emphasized the importance of continuing to use disaggregated data or information provided by business contacts as a check on readings on labor market conditions obtained from aggregate data.

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What to Expect in 2025 – Structured Finance | Insights | Mayer Brown

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What to Expect in 2025 – Structured Finance | Insights | Mayer Brown

This highly anticipated in person only event will feature expert insights and actionable strategies to help you navigate the shifting landscape and capitalize on emerging trends in the year ahead.

The Agenda will include:

  • US Government Policy Updates and Geopolitical Risks
  • Consumer, Insurance Bank and other Regulatory Updates
  • CLOs and CFOs
  • Capital Relief Trade
  • Capital Call Lines and Joint Ventures
  • Trade Receivables
  • Cryptocurrencies, Emerging Asset Classes, Vertical Integration and Tax
  • SEC updates and much more

CLE credit is pending.

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For additional information or to register, please contact Jeanette Ponce at jponce@mayerbrown.com or +1 212 506 2484.

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Stocks rise, S&P 500 set to break losing streak: Yahoo Finance

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Stocks rise, S&P 500 set to break losing streak: Yahoo Finance

The S&P 500 is set to end its 5-day streak of losses. The major indexes (^DJI,^GSPC, ^IXIC) are all trading higher thanks to big-name tech stocks like Nvidia (NVDA) and Tesla (TSLA). One stock that is trading lower is US Steel (X), which fell sharply after President Biden announced he will block Nippon Steel’s (NPSCY) purchase of the company. Other trending tickers on Yahoo Finance today include Rivian Automotive (RIVN), Adobe (ADBE), and Oklo (OKLO).

Key guests include:
3:05 p.m. ET – Ahmed Riesgo, Insigneo Chief Investment Officer
3:15 p.m. ET – Brian Gardner, Stifel Chief Washington Policy Strategist
4:00 p.m. ET – David Miller, Catalyst Funds Co-Founder, Chief Investment Officer and Senior Portfolio Manager
4:35 p.m. ET – Rachel Tipograph, MikMak, founder and CEO

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Tesla to Announce Q4 2024 Financial Results on January 29, 2025

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Tesla to Announce Q4 2024 Financial Results on January 29, 2025

Tesla (NASDAQ:TSLA) is planning to report its Q4 2024 results displaying their net income and cash flow of the business’s profitability and financial position on January 29, 2025 after market close.

Tesla experienced different stock price fluctuations, as market responses, between 9% and 22% within one day after releasing the results.

Tesla to Announce Q4 2024 Financial Results on January 29, 2025

Tesla’s management will also give their 2025 guidance such as production, models, technology including Full Self-Driving (FSD).

The one-year price targets for Tesla given by 45 analysts are USD 278.47 at the average while ranging from as high as USD 515.00 and the lowest at USD 24.86. The average target is -26.58% from the current price at $379.28.

GuruFocus calculates the GF Value for Tesla one year ahead to be at $298.99 which indicates the stock to be overvalued -21.17% from the current price $379.28.

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You can make more informed investment decision by visiting GuruFocus now and deep dive into Tesla’s performance with charts, breakdowns, 30-year financial data, and more!

This article first appeared on GuruFocus.

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