WASHINGTON—The Federal Open Market Committee's September meeting minutes offer new insights into the committee’s decision to cut rates by 25 basis points. In addition, the FOMC also addressed recent volatility in money markets, which led to the recent announcement of a planned expansion of the Federal Reserve’s balance sheet.
"Last month’s FOMC meeting occurred right at the outset of the repo market volatility, which led to sustained intervention from the New York Fed as well as this week’s announcement that the Fed would resume organic growth of its balance sheet," observed NAFCU Chief Economist and Vice President of Research Curt Long. "The meeting minutes still show some uncertainty on the part of the Fed as to the reluctance of some holders of excess reserves to lend those out even after rates spiked."
Committee members attributed the volatility to large corporate tax payments and Treasury settlements. But they also noted that in practice banks were more reluctant to lend excess reserves than previous surveys had indicated, Long said.
Generally Positive
Separately, the meeting minutes show committee members were generally positive about the economy, despite continued concerns about trade risks, since their July meeting.
"On the economic front, the committee was relatively upbeat with regard to current conditions, save for weak inflation, but was growing increasingly anxious about downside risks," Long said. "The main fear was that trade tensions would move from depressing firms’ investment decisions to hiring.
"On the whole, the minutes reflect an easing bias, and given that trade and political risks have not exactly abated since that meeting, NAFCU expects another 25-point cut later this month," Long concluded.
The FOMC will next meet and decide on whether another rate cut is needed Oct. 29-30.