By Howard Schneider
WASHINGTON, Oct 7 (Reuters) – A readout on Wednesday of the Federal Reserve’s last policy meeting is expected to show a much broader debate than reflected in the unanimous decision to raise interest rates, with possible implications for the US central bank’s next policy steps.
The rate hike delivered after the end of the September 15-16 meeting was billed by Fed Chairman Kevin Warsh as an action aimed at removing a “dose of accommodation” at a time when inflation seemed stalled above the central bank’s 2% target and monetary policy, in Warsh’s view, seemed to be putting little restraint on the overall economy.
But it was also seen as following through on the hawkish stance Warsh had taken in late-summer comments that promised the Fed would lower inflation “at sufficient speed,” even if that meant rate hikes that went against President Donald Trump’s demand for lower borrowing costs.
Though the Fed now seems set to hold rates steady at its October 27-28 meeting, less than a week before the US midterm congressional elections, the minutes of last month’s meeting may help show how deep the divide is between policymakers who feel inflation is strong and persistent enough to require steady policy tightening and those inclined to be more patient until new data show the need to raise rates further.
“We expect the minutes to show that despite broad agreement on the policy decision, officials hold a range of views regarding future monetary policy,” Citi analysts wrote.
Those views range from the more patient approach laid out since last month’s meeting by key policymakers like New York Fed President John Williams to Dallas Fed President Lorie Logan’s belief that at least two more quarter-percentage-point hikes will be needed to control inflation.
The minutes will be released at 2 p.m. EDT (1800 GMT).
WEAKER DATA
The Fed last month raised its policy rate by a quarter of a percentage point to the 3.75%-4.00% range. Projections issued after the meeting showed 16 of the 18 Fed officials who submitted forecasts had penciled in one more hike this year.
But data since then has shown inflation rose less than expected in August, while job growth in September was weaker than anticipated.
“We expect that some officials disagreed with Chair Warsh’s characterization of the economy as so strong that rate hikes will do ‘no harm,'” the Citi analysts wrote. “We also expect that some officials would have seen inflation data ahead of the meeting as ‘encouraging.'”
In the aftermath of last month’s meeting, investors had anticipated the Fed would raise rates at both of its gatherings in October and December.
That view shifted after Williams, who also serves as vice chair of the central bank’s rate-setting Federal Open Market Committee, said there was “no need for urgency” in deciding when to hike again, a sentiment echoed by Fed Vice Chair Philip Jefferson.
Warsh, in line with a pledge to give less guidance about monetary policy, has not spoken publicly since his September 16 post-meeting press conference.
Investors now overwhelmingly expect the Fed to keep rates on hold this month. Before its next meeting, the Fed will receive the Consumer Price Index for September, and have enough data in hand to closely estimate the September inflation rate for the Personal Consumption Expenditures Price Index, which it uses to set its 2% target.
(Reporting by Howard Schneider; editing by Dan Burns and Paul Simao)
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