Kevin OLeary, chairman of OLeary Ventures, joins Mornings with Maria to discuss why more rate cuts are unlikely, the growing rift within the Federal Reserve, and the global consequences if political influence threatens the Fed’s independence.
Federal Reserve Policymakers were deeply divided over the decision to cut rates at their December meeting as the U.S. economy faces a challenging mix of risks, according to the minutes of their latest policy meeting.
The Fed cut rates by 25 basis points for the third time in a row at its December meeting, lowering the Fed Funds rate to a range of 3.5% to 3.75%. The decision took place against the backdrop of a slowing labor market inflation increased above the Fed’s 2% target, a dynamic that threatens both sides of the central bank’s dual mandate.
Two voting members of the Federal Open Market Committee disagreed with leaving rates unchanged, while one disagreed with a larger cut of 50 basis points. Furthermore, six officials published economic forecasts showing that they were against a cut.
“Most participants” voted in favor of a cut, while “some” of these policymakers argued that it was an appropriate forward-looking strategy that would “help stabilize the labor market” amid a recent slowdown in job creation. Others, however, expressed concern that progress toward the commission’s 2% inflation target had stalled.
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Federal Reserve Chairman Jerome Powell noted the deep division between policymakers’ perspectives during his post-meeting news conference. (Elizabeth Frantz/Reuters/Reuters)
“Some participants suggested that, among them economic prospects“It would probably be appropriate to leave the target rate unchanged for some time following a reduction in the range at this meeting,” the minutes said.
Policymakers, including Fed Chair Jerome Powell, have suggested that the central bank’s policy level is now closer to neutral and that further rate cuts in the new year may be put on hold pending new economic data, following the historic 43-day rate cut. government shutdown which ended in November, delayed major economic reports in the final months of the year.
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Chicago Fed President Austan Goolsbee (pictured) and Kansas City Fed President Jeffrey Schmid both split in favor of leaving rates unchanged. (Brendan McDermid/Reuters/Reuters)
Some policymakers who were opposed or skeptical about the decision to cut rates in December “suggested that the arrival of a significant amount of labor market and inflation data over the next interim period would be helpful in assessing whether a rate cut was justified.”
Inflation in December and labor market data is expected to be released on January 9 and 13, as the federal agencies charged with collecting data and compiling economic reports in the wake of the shutdown return to their normal release schedule.
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Fed Governor Stephen Miran argued in December for a larger rate cut of 50 basis points. (Michael Nagle/Bloomberg/Getty Images/Getty Images)
The minutes also showed that policymakers were watching for signs of a ‘K-shaped’ economy, in which there is a difference in spending patterns of high and low income households.
“A majority of participants cited evidence of stronger spending growth for high-income households, while lower-income households have become increasingly price sensitive and have adjusted their spending in response to the excessive cumulative increase in the prices of basic goods and services in recent years,” the minutes said.
The Fed will hold its next monetary policy meeting on January 27 and 28 and the market sees a greater chance that rates will remain stable.
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According to CME’s FedWatch tool, the odds of the Fed leaving rates at the current range of 3.5% to 3.75% are currently 85%, up from 67.1% a month ago.
Reuters contributed to this report.
