By Lindsay Dunsmuir and Jason Lange
WASHINGTON, Nov 20 (Reuters) - An increasingly divided
Federal Reserve that decided to hit pause in its easing cycle
following a rate cut at its October meeting offered little
guidance on what would cause policymakers to change their minds
on the outlook, minutes of the central bank's last policy
meeting showed.
The readout released on Wednesday of the Oct. 29-30 policy
discussion, at which the Fed voted 8-2 to lower interest rates
by a quarter percentage point, also showed policymakers further
discussed the possibility of setting up a standing repo facility
in the wake of recent ructions in short-term money markets.
"Most participants judged that the stance of policy, after a
25 basis point reduction at this meeting, would be well
calibrated to support the outlook of moderate growth, a strong
labor market and inflation near the committee's symmetric 2%
objective," the Fed said in the minutes.
Following the meeting, Fed Chair Jerome Powell signaled the
Fed was effectively on hold with interest rates and said that
would only change if there was a "material" change in the U.S.
economic outlook.
That phrasing, absent from the policy statement at the time,
indicated that October's reduction in borrowing costs to a
target range of between 1.50% and 1.75%, would be the last rate
move over the short term.
The Fed has cut interest rates three times this year. The
cuts have been positioned as "a mid-cycle adjustment" to help
shield the U.S. economy from the effects of the U.S.-China trade
war and slowing global growth, which have hurt manufacturing,
business investment and exports.
In the minutes, there was little discussion of what a
"material" reassessment would involve, bar two policymakers who
wanted the Fed to make plain that another rate cut would be
unlikely in the near term unless there was a significant
slowdown in the pace of economic growth. Dallas Fed President
Robert Kaplan has since said the price of his support was such a
statement being made.
The Fed is forecasting the economy growing 2.2% this year,
slightly above its potential, which the central bank estimates
at around 2%.
While economic growth has slowed this year, fears that
sectoral weakness could spread to the wider economy have not
materialized as it continues to expand at a moderate pace with
unemployment near a 50-year low and consumer spending, which
accounts for roughly 70% of U.S. economic activity, still
holding up.
That dissonance has left the committee increasingly divided.
Boston Fed's Eric Rosengren and Kansas City Fed's Esther George
voted against October's rate cut and since the meeting several
other non-voting policymakers have said they were against the
October decision.
"Many participants judged that an additional modest easing
at this meeting was appropriate in light of persistent weakness
in global growth and elevated uncertainty regarding trade
developments," the minutes said.
By contrast, "some" policymakers were against the reduction,
viewing the economic outlook as still favorable, inflation
moving back to the Fed's goal and "in light of lags in the
transmission of monetary policy, preferred to take some time to
assess the economic effects of...previous policy actions."
Regarding a standing repo facility, many policymakers said
it "could serve as a useful backstop" to support the federal
funds rate in the event of a shock, but also noted there may be
little need for one once ample reserves have been established.
No final decision was taken at the meeting.
The Fed has one more interest-rate setting meeting before
the end of the year, on Dec.10-11, but investors now see the Fed
keeping interest rates unchanged until at least mid-2020.
(Reporting by Lindsay Dunsmuir and Jason Lange; Editing by
Andrea Ricci)