FOMC Minutes: "Majority of Members Advocate December Rate Hold"...Further Cuts This Year in Doubt

Fed Releases October FOMC Minutes
"Many" Members Oppose Further Cuts, While "Several" Leave Door Open
Market Lowers Expectations for December Rate Cut... 66% See Rates on Hold

A majority of members of the United States Federal Reserve (Fed) have expressed a negative stance toward additional interest rate cuts within this year. As the divide between hawkish (favoring monetary tightening) and dovish (favoring monetary easing) views within the Fed becomes more pronounced, and with many members advocating for a rate hold, expectations for a rate cut in December are becoming increasingly uncertain.

Jerome Powell, Chairman of the United States Federal Reserve (Fed).

On November 19 (local time), the Fed released the minutes of the Federal Open Market Committee (FOMC) meeting held in October of this year, stating, "Many participants suggested that it would be appropriate to leave the target range for the federal funds rate unchanged for the remainder of the year, depending on the economic outlook." This indicates that a significant number of members are opposed to additional rate cuts within the year.

In contrast, some members left open the possibility of an additional rate cut in December. The minutes also noted, "Several participants judged that another rate cut in December could be appropriate if the economy evolves as expected."

Within the Fed, the term "many" carries more weight than "several," suggesting that among the 19 FOMC members, opposition to further rate cuts this year is in the majority. However, since only 12 members have voting rights, it is still too early to predict the final outcome.

At the FOMC meeting held on October 29, the Fed lowered the federal funds rate by 0.25 percentage points to a range of 3.75% to 4.0% per year. This marks the second consecutive rate cut, following a 0.25 percentage point reduction in September from the 4.25% to 4.5% range at the beginning of the year. The latest minutes reveal that members remain sharply divided over whether to prioritize the risks of persistent inflation or a slowing labor market.

There were also differing views on how "restrictive" the current monetary policy is. Some participants judged that, despite the rate cuts, the policy is still restraining growth, while others assessed that, given the "resilience of economic activity," the policy is not restrictive.

Nevertheless, concerns about a slowdown in employment and stalled progress toward the 2% inflation target were commonly shared. The minutes stated, "In this context, many participants supported lowering the target range for the federal funds rate at this meeting," adding, "Some, while supporting the decision, could have also supported maintaining (holding) the target range. Several participants opposed lowering (cutting) the target range."

This atmosphere is consistent with remarks made by Fed Chairman Jerome Powell. Following last month's FOMC meeting, Powell stated at a press conference, "We should not take a December rate cut for granted," adding, "In fact, it is far from certain." He also noted, "There are significant differences of opinion among policymakers regarding the direction for December," and added that before any further cuts, "there is a growing call to wait at least one more cycle (meeting)."

The minutes also revealed that, regarding the decision to end balance sheet reduction-known as quantitative tightening (QT)-almost all participants viewed or could support halting it on December 1. Since June 2022, the Fed has been reducing its asset holdings, which has raised concerns that declining bank reserves could tighten liquidity in short-term funding markets and increase volatility in ultra-short-term rates.

Meanwhile, following the release of the minutes, market expectations for a December rate cut dropped significantly. According to CME FedWatch, the market now reflects a 33.8% probability that the Fed will cut the current federal funds rate (3.75% to 4.0%) by 0.25 percentage points at the December FOMC meeting, down sharply from 50.1% the previous day. In contrast, the probability of a rate hold rose from 49.9% to 66.2% over the same period.