The Fed: Fed minutes show worries about economy had eased a bit
Federal Reserve officials were more upbeat about the economy in late October than they had been only six weeks earlier, according to minutes of their policy discussion released Wednesday.
Officials “generally viewed the economic outlook as positive,” the minutes said.
“Uncertainties associated with trade tensions as well as geopolitical risks had eased somewhat, although they remained elevated,” the summary said.
Officials talked about a “resilient” economy in the face of headwinds.
At their meeting, the Fed voted 8 to 2 to trim rates by a quarter-point. It was the third straight meeting with a cut, bringing the benchmark fed funds rate to a range of 1.5%-1.75%.
As expected, there was widespread support among Fed officials for moving to the sidelines to give officials time to assess the impact of the easing. Fed Chairman Jerome Powell signaled the pause in his press conference after the meeting and officials in their public speeches have endorsed the idea.
The minutes stress that the Fed would be watching the data closely and policy was not on a pre-set course. Powell told Congress last week that “if developments emerge that cause a material reassessment of our outlook, we would respond accordingly.” The minutes did not give further definition of what such a “material” change would look like.
According to the minutes, only two officials wanted more clarity to be expressed. They asked the committee to tell investors that further easing “was unlikely in the near term unless incoming data was consistent with a significant slowdown in the pace of economic activity.”
The minutes show Fed officials had a lengthy discussion of putting in place a permanent repo facility to be a backstop in case of future turmoil in the short-term lending market similar to the latest episode in September.
An alternative idea was to start relatively frequent repo operations that could be scaled up if needed. No decision on these two alternatives was taken.
Officials also talked about what tools to use in the next recession. In a rare case of unanimity, “all” Fed officials said they opposed pushing their benchmark interest rate into negative territory in a downturn as central banks in Europe and Japan have done.
There was general agreement that bond purchases — considered to be quantitative easing to boost the economy — along with guiding the market about future policy, would be effective tools in fighting the next downturn.