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Fed Minutes Show Some Concern About Market Expectations For Rate Cuts

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A few participants at the Federal Reserve's monetary policy meeting in September expressed concerns that the markets expect more interest rate cuts than are appropriate, according to the minutes of the meeting released on Wednesday.

The minutes said those participants felt it might become necessary for the Fed to seek a better alignment of market expectations regarding the path of rates with policymakers' own expectations.

"Several participants suggested that the Committee's postmeeting statement should provide more clarity about when the recalibration of the level of the policy rate in response to trade uncertainty would likely come to an end," the Fed said.

CME Group's FedWatch Tool currently indicates markets widely expect a 25 basis point rate cut at the Fed's next meeting later this month and a 45.3 percent chance for yet another 25 basis point rate cut at the December meeting.

The Fed minutes noted that most participants believed that the 25 basis point rate cut announced after the September meeting was appropriate, although there was notable dissent.

Members preferring the modest rate cut argued the move would insure against further downside risks arising from weak global growth and trade policy uncertainty, with a couple noting that monetary policy actions affect aggregate spending with a lag.

However, Kansas City Fed President Esther George and Boston Fed President Eric Rosengren preferred to maintain the current target range for the federal funds rate.

George and Rosengren noted that economic data received over the intermeeting period had been largely positive and that they anticipated, under an unchanged policy stance, continued strong labor markets and solid growth in activity, with inflation gradually moving up to the Fed's 2 percent objective.

The minutes said George and Rosengren also suggested that providing further accommodation during a period of high economic activity and elevated asset prices could have adverse consequences for financial stability.

Meanwhile, St. Louis Fed President James Bullard preferred cutting rates by 50 basis points, suggesting that a larger rate cut would be more consistent with the Fed's objectives over time.

Bullard felt a steeper rate cut would be particularly helpful in precluding the possibility of a protracted period in which inflation and employment were below the Fed's objectives.

Looking ahead, the minutes said participants agreed that policy was not on a preset course and would depend on the implications of incoming information for the evolution of the economic outlook.

The Fed's next monetary policy meeting is scheduled for October 29-30, with the final meeting of the year set for December 10-11.

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