Fed split on rate cut

Wall Street drops as tensions climb ahead of trade talks

Wall Street drops as tensions climb ahead of trade talks

A quick read of the Fed minutes from its September meeting showed that some Federal Open Market Committee (FOMC) members expressed concern that the financial markets may be expecting more rate cuts than the central bank will deliver.

Several noted that models gauging recession probabilities had "increased notably in recent months".

"Participants agreed that consumer spending was increasing at a strong pace", they said.

As exports have fallen and factories have entered a prolonged slump, this has left consumer spending as the main pillar supporting growth and made the economy increasingly vulnerable, economists say.

In the question and answer period after his speech, Powell compared the current period to two instances in the 1990's when the Fed cut rates three times in a successful effort to keep an economic expansion on track.

Powell didn't go into details on the outlook for the economy or interest rates in his remarks, which largely echoed comments he made on Friday and were mostly devoted to the Fed's ongoing longer-term strategic review of its policies and practices. More than a half of the 17 officials in attendance were opposed to further cuts.

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"The Fed cut, and then cut again, and then cut a third time", he said. "So that's the spirit in which we're doing this".

"Clearly, things are slowing a bit now...but [growth] may just be gathering itself", he said. Changes to the Fed's bond holdings have received much more attention than the consequent implications for liquidity, and keeping bond holdings constant is not enough to prevent liquidity shrinkage. "There's no reason why the expansion can't continue". The financial markets always scrutinize the minutes of the Fed for possible clues about future monetary policy. The minutes said that "a few participants" at the September meeting said prices in futures markets "were now suggesting greater provision of accommodation at coming meetings than they saw as appropriate".

Mr Powell noted recent data revisions showed less job growth in the year to March than previously estimated, turning a "booming" market into one of moderate growth.

Moreover, several officials said that because monetary policy worked with a lag, "it was appropriate to provide the requisite policy accommodation now to support economic activity over coming quarters", the minutes said. 9, the Federal Reserve releases minutes from its September meeting when it cut interest rates for a second time this year.

Because of the potential misunderstanding, "it might become necessary for the Committee to see a better alignment of market expectations regarding the policy rate path with policymakers' own expectations for that path", the minutes said.

Powell's comments suggest the Fed is inching closer to reducing rates at the upcoming meeting "but it's not a done deal", said Michael Gapen, chief USA economist at Barclays Plc.

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