Fed Holds Rates Steady Last Month, Officials Split on Future Path

After three consecutive rate cuts, the Federal Reserve System (Fed) kept its benchmark interest rate unchanged last month, and officials are now divided over the future direction of policy. According to Financial News, most policymakers supported last month’s decision to hold rates steady, but they were reluctant to choose clearly between raising rates further to curb inflation or cutting them to stimulate the labor market.
On the 18th (local time), the Fed posted on its website the minutes of the regular Federal Open Market Committee (FOMC) meeting held on the 27th and 28th of last month. The Fed had lowered the benchmark rate by 0.25 percentage points at each of the previous three meetings since last September, but at last month’s meeting it left the rate unchanged in a range of 3.5% to 3.75%. Of the 12 voting FOMC members, 10, including Chair Jerome Powell, supported the hold, while Fed governors including Steven Miron and Christopher Waller backed a 0.25 percentage point cut.
In the 18-page minutes, the Fed reported that participants "generally supported leaving the target range for the federal funds rate unchanged" at last month’s meeting. The document also noted that "participants generally expected solid economic growth to be maintained this year." The Fed added, "Several participants, in reviewing the outlook for monetary policy, remarked that if inflation continued to ease, it would be appropriate to further lower the target range for the federal funds rate."
However, officials wrestled with whether to prioritize restraining inflation or supporting the labor market going forward. The minutes stated, "Some participants indicated that maintaining the current target range for the federal funds rate for some time would be appropriate while they carefully assessed incoming data." It continued, "Many of these participants judged that additional policy easing might not be warranted until there were clear signs that progress toward disinflation in a weakening economy had definitively resumed." According to the minutes, some officials even argued that rate hikes should be considered to rein in inflation. The Fed characterized this view by saying it "could support a two-sided description of the Committee’s future policy decisions on the federal funds rate." It explained that this "reflected the possibility that, if inflation were to remain above the Committee’s objective, it could be appropriate to raise the target range for the federal funds rate."
The minutes also showed that "a large majority of participants" saw signs that labor market conditions were stabilizing and judged that downside risks had diminished. Some participants suggested that the baseline outlook for inflation and the economy could still include additional rate cuts. The FOMC meets eight times this year, with the next meeting scheduled for March 17–18.
pjw@fnnews.com Reporter Park Jong-won Reporter