Federal Reserve Lowers Rates by 25 Basis Points Amid Growing Dissent: One Member Favored a 50-Point Cut, Another Favored a Pause

In the early hours of October 30 Beijing time, the Federal Reserve reduced the target range for the federal funds rate by 25 basis points to 3.75%–4.00%, a move that met market expectations.
The statement issued by the Committee noted that available indicators point to economic activity expanding at a moderate pace. Employment growth has moderated this year, and the unemployment rate has risen slightly since August while remaining at a low level. More recent data are consistent with these trends. Inflation increased earlier this year and remains elevated. The Committee observed two-sided risks to its dual mandate and judged that downside risks to employment have risen in recent months.

Compared with the September statement, the October version includes more explicit temporal references. It highlights that employment growth has slowed “this year,” that the unemployment rate has inched up “since August,” and that “more recent indicators” corroborate these developments. The statement also notes that inflation rose “earlier this year” and that downside employment risks have increased “in recent months.”

The language specifying that conclusions are based on “available” indicators may reflect the impact of data gaps arising from the U.S. government shutdown on the Committee’s deliberations.
The Committee also announced an end to its balance-sheet runoff. It stated that it will cease reducing its securities holdings on December 1. Previously, the Federal Reserve had indicated it would continue to reduce holdings of U.S. Treasuries, agency debt, and agency mortgage-backed securities.

In assessing the appropriate stance of monetary policy, the Committee will monitor incoming economic data closely. If risks emerge that impede the attainment of its dual mandate, the Committee stands ready to adjust the stance of policy as appropriate. Its evaluation will consider a broad set of information, including labor market indicators, measures of inflation pressure and inflation expectations, and developments in financial markets and the global economy.

The policy decision was not unanimous; there were two dissenting votes. Governor Stephen I. Miran preferred a 50-basis-point rate cut at this meeting. President Jeffrey R. Schmid of the Kansas City Fed favored pausing further rate changes. Governor Miran, who was recently appointed, had also supported a 50-basis-point cut at the prior meeting.

The full October statement and its revisions relative to September read as follows: available indicators (September read: “recent indicators”) suggest that economic activity has continued to expand at a moderate pace (September read: “growth in economic activity slowed during the first half of the year”). The October statement adds “this year” to note that employment growth has slowed, specifies that the unemployment rate has edged up “since August” while remaining low, and includes that “more recent indicators also align with this pattern.” The statement further notes that inflation rose “earlier this year” and remains elevated.

The Committee reaffirmed its longer-run objectives of maximum employment and 2 percent inflation. Uncertainty about the economic outlook remains elevated. The Committee acknowledged two-sided risks to its monetary policy goals and assessed that downside risks to employment have increased “in recent months.”

To support its objectives while balancing risks, the Committee decided to lower the target range for the federal funds rate by 25 basis points to 3.75%–4.00% (September: 4.00%–4.25%). In considering whether to make further adjustments to the target range, the Committee will carefully evaluate incoming data, evolving outlooks, and shifts in the balance of risks. The Committee also decided to end the reduction of its securities holdings on December 1 (September read: “will continue to reduce holdings of U.S. Treasuries, agency debt, and agency mortgage-backed securities”). The Committee remains firmly committed to supporting maximum employment and to restoring inflation to its 2 percent objective.

When determining the appropriate policy stance, the Committee will continue to assess incoming information. If developments impede the Committee’s ability to achieve its dual mandate, it will be prepared to modify policy accordingly. Considerations will include labor market metrics, inflation pressures and expectations, and financial and international developments.

Voting in favor of the policy action were Chair Jerome H. Powell; Vice Chair John C. Williams; Governors Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Philip N. Jefferson, and Christopher J. Waller; and Reserve Bank Presidents Susan M. Collins, Austan D. Goolsbee, and Alberto G. Musalem. Governor Stephen I. Miran cast a dissenting vote in favor of a 50-basis-point reduction, while Kansas City Fed President Jeffrey R. Schmid dissented in favor of maintaining the current target range.