Fed says July rate cut was ‘recalibration’ and not part of ‘pre-set course’ for more easing

Federal Reserve officials who voted to lower interest rates three weeks ago agreed that the move shouldn’t be viewed as an indication that there is a “pre-set course” for future cuts, according to meeting minutes released Wednesday.

The summary indicated that policymakers viewed the move as a “mid-cycle adjustment,” an expression Chairman Jerome Powell used in a news conference afterward that was seen as contributing to a stock market sell-off after the July 30-31 meeting.

Markets have been pricing in a series of rate cuts, so Powell’s use of the term spread concern that the Fed might not be as accommodative with policy as anticipated.

Ultimately, the Federal Open Market Committee, which sets monetary policy, voted to lower the central bank’s benchmark rate by 25 basis points to a target range of 2% to 2.5%. It was the first rate cut in 11 years, dating to the financial crisis.

However, members did not commit to future cuts.

“In their discussion of the outlook for monetary policy beyond this meeting, participants generally favored an approach in which policy would be guided by incoming information and its implications for the economic outlook and that avoided any appearance of following a pre-set course,” the minutes stated.

The document went on to say that “most participants” saw the quarter-point cut “as part of a recalibration of the stance of policy, or mid-cycle adjustment” in response to changing conditions.

“A number of participants suggested that the nature of many of the risks they judged to be weighing on the economy, and the absence of clarity regarding when those risks might be resolved, highlighted the need for policymakers to remain flexible and focused on the implications of incoming data for the outlook,” the minutes said.

The disclosure comes amid President Donald Trump‘s repeated clamoring for more aggressive cuts. He wrote multiple tweets Wednesday hectoring Powell and the central bank for their pace of easing.

Those in favor of the rate cut cited three principal factors: slowing economic activity, particularly reductions in business investment and manufacturing; “risk management” at a time of slowing economic activity and trade tensions; and soft inflation, with readings persistently low the Fed’s 2% target.

The minutes noted that “a couple” members wanted a 50 basis point cut, based primarily on the weak inflation readings. At the same time, “several” sought no move considering that risks had “diminished” since the June meeting.

Ultimately, even though members agreed the economy had been showing some improvement in the days leading up to the meeting, they agreed to the rate cut.

The minutes said those who voted in favor of the cut felt it would “better position the overall stance of policy to help counter the effects on the outlook of weak global growth and trade policy uncertainty, insure against any further downside risks from those sources, and promote a faster return of inflation to the Committee’s 2 percent symmetric objective than would otherwise be the case.”

Those officials saw the move “as part of an ongoing reassessment” of policy that began in 2018, a year during which the Fed raised rates four times.

There were two no votes at the meeting, from Fed presidents Eric Rosengren of Boston and Esther George of Kansas City.

There also was some discussion at the meeting surrounding the committee’s decision to end its balance-sheet reduction two months earlier.

The Fed had been allowing a capped level of proceeds from its bond portfolio to roll off each month, resulting in a more than $600 billion reduction in the balance sheet. Members voted to end the program as of Aug.1 rather than the end of September. Some members were concerned that the end might challenge the Fed’s expressed view that its main tool for policy was the funds rate, while others said continuing the reduction would have been inconsistent with the rate cut.