Fed officials are divided about whether to lower rates to save the job market or keep them higher for longer to fight inflation.
FOMC members are working with limited data because the government shutdown delayed or cancelled key economic reports.
A Federal Reserve rate cut in December is looking less likely as minutes from the Fed’s most recent policy committee meeting show its members are sharply divided about how to proceed.
The minutes, released Wednesday, reflected what Fed Chair Jerome Powell had described as “strongly different views” in a press conference following the committee’s decision in October. At that meeting, members voted to lower the fed funds rate by a quarter point in an effort to boost hiring amid a job market slowdown.
“Several participants assessed that a further lowering of the target range for the federal funds rate could well be appropriate in December if the economy evolved about as they expected over the coming intermeeting period,” the minutes said. “Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year.”
The minutes underscored the deep divisions among members of the Federal Open Market Committee as they grapple with a dilemma: whether to keep interest rates higher for longer to fight inflation, or lower them quickly to prevent a surge of unemployment.
The Fed is tasked with doing both, but persistently high inflation and slowing job growth are pushing the central bank in opposite directions. The chances of a rate cut in December fell to about one in three from fifty-fifty after the minutes came out, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.
While the Fed’s decision at its next meeting is far from a sure thing, the meeting minutes suggest FOMC members are growing more reluctant to cut interest rates as high inflation persists.
Only one member of the 12 had voted not to lower the fed funds rate, but the minutes showed others had argued against it.
“Many participants were in favor of lowering the target range for the federal funds rate at this meeting, some supported such a decision but could have also supported maintaining the level of the target range, and several were against lowering the target range,” the minutes said.
The minutes suggest that Fed members are becoming more reluctant to cut rates as inflation exceeds the Fed’s goal of a 2% annual rate for a fifth consecutive year, with little sign that it will fall to the target rate anytime soon.
Further complicating the Fed’s decision-making was the 43-day federal government shutdown that ended last week. The shutdown shuttered statistical agencies and delayed, and in some cases canceled, key reports shedding light on the state of the economy.
The Bureau of Labor Statistics report on job creation and unemployment for November will be delayed until after the Fed’s meeting Dec. 9 and 10, and its report for October was cancelled entirely.
“A very divided Fed has a tough decision to make, with just weeks before the next meeting and a lack of economic data to mull over,” Priscilla Thiagamoorthy, an economist at BMO Capital Markets, wrote in a commentary.