By Nick Timiraos
WASHINGTON -- Federal Reserve officials said little about what would prompt them to resume interest-rate cuts when they signaled a pause following last month's rate reduction.
In cutting rates for the third time since July, Fed policy makers at the October meeting worried that weakness in manufacturing, trade and business investment could threaten the economic expansion by triggering cutbacks in hiring and consumer spending, according to minutes of the policy meeting, released Wednesday.
"Risks to the outlook associated with global economic growth and international trade were still seen as significant despite some encouraging geopolitical and trade-related developments," the minutes said.
They showed last month's decision to cut rates had less support than earlier moves and that most officials thought that they should shift to a wait-and-see stance in the weeks or months ahead.
"Most participants judged that the stance of policy...would be well calibrated" after last month's rate cut, according to the minutes. The Fed lowered its short-term benchmark to a range between 1.5% and 1.75%.
At his October news conference, Fed Chairman Jerome Powell said new information that prompted a "material reassessment" of the outlook would be needed to cut rates again.
The written account of the most recent meeting and public comments from officials since then indicate "they're hoping that what they've done cumulatively is enough to offset some of the downside risks, but it doesn't seem to me that they're very convinced of that," said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.
Meanwhile, the bar for raising interest rates was so high "that the possibility wasn't even seriously discussed," said Roberto Perli, an analyst at Cornerstone Macro.
Investors expect the Fed to hold rates steady at its next meeting on Dec. 10-11, and futures markets see a roughly 50% probability of one more rate cut by the middle of next year, according to CME Group.
Fed officials raised short-term interest rates four times last year to guard against undesirable levels of inflation or financial bubbles. They have cut rates this year because of a slowdown in business investment and global growth amplified by the U.S.-China trade war.
Hopes for a trade truce last month boosted investor optimism that the economy can avoid a downturn. But the Trump administration and Beijing have struggled to complete a partial deal this month after reaching what the White House billed as an "agreement in principle" on Oct. 11.
The Fed has been divided since the summer over the proper tactics to employ in an environment of heightened uncertainty, slowing global growth and historically low interest rates.
Two regional reserve bank presidents have dissented from every vote this year to lower rates, instead preferring to leave them unchanged. Another three presidents without a vote have indicated that they didn't support the decision last month.
The minutes showed two more officials who supported a cut viewed it as a "close call."
Mr. Powell and other senior Fed officials have argued against waiting to see the economy slow sharply before lowering interest rates, particularly because historically low interest rates leave the central bank with less firepower to counteract a downturn by cutting rates to spur growth.
"The idea of 'keeping your powder dry,' which is how it's often expressed -- 'Don't do things now. Save it for when you really need it.' -- I think it's actually a mistake," Federal Reserve Bank of New York President John Williams said during a moderated discussion in Washington on Tuesday.
Because it can take one year or longer for monetary policy to influence spending and investment decisions, "you really do need to be pre-emptive, " he said.
Separately, some officials called out concerns related to financial risks, including declining capital buffers at some banks and potentially rosy assumptions around business debt, according to the minutes.
President Trump has criticized the Fed for not reducing rates more aggressively this year. In recent weeks, including at a White House meeting with Mr. Powell on Monday, he has said the U.S. should have lower interest rates than other countries, including those in Europe with negative rates.
The Fed says it sets monetary policy independent of political considerations.
Fed officials ruled out the use of negative rates anytime soon at last month's meeting. They examined the approach as part of broader contingency planning the central bank has conducted this year.
"All participants judged that negative interest rates currently did not appear to be an attractive monetary policy tool in the United States," the minutes said.
Officials saw the benefits of negative rates abroad as mixed, and they worried that introducing them in U.S. capital markets would create "significant complexity or distortions to the financial system," the minutes said.
Mr. Powell last week told lawmakers that negative rates wouldn't be appropriate for the U.S. Abroad, such rates reflect very weak growth and inflation prospects, he said.
Rather than experiment with negative rates to stimulate the economy in a potential downturn, the minutes showed officials were more receptive to a program that explicitly caps the yield on short-term Treasury securities by committing to make substantial purchases, sometimes called yield-curve control.
Write to Nick Timiraos at email@example.com
(END) Dow Jones Newswires
November 20, 2019 18:05 ET (23:05 GMT)
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