FOMC Minutes Reveal Powell Navigating Divided Fed with Lower Rate Cut Odds

The latest minutes from the Federal Open Market Committee (FOMC) reveal a complex situation for the U.S. economy. With interest rate cuts seeming less likely, Fed Chair Jerome Powell faces a divided committee. The odds for a December interest rate reduction have dropped dramatically, creating uncertainty for the markets.

Interest Rate Expectations

As of now, there is only a 32% probability that the Fed will cut rates by 25 basis points next month, down from nearly 99% a month ago. The current federal funds rate stands at 3.75% to 4%. This shift in expectations is likely to frustrate President Trump, who has criticized Powell and called for more substantial cuts to combat a housing crisis.

FOMC Meeting Insights

Meeting minutes from the FOMC’s October session indicate a split among committee members concerning inflation rates. The Fed aims for inflation at 2%, but current levels are around 3%. The minutes highlighted differing opinions, with some members comfortable with current inflation while others expressed concerns about its persistence above the target.

• Many participants noted inflation had exceeded the target for an extended period.
• Several advocated for a rate cut in December, while others preferred to maintain the current rate.

Consensus on future monetary policy seems fragile. Importantly, the committee emphasized that “monetary policy was not on a preset course,” indicating ongoing debates about the best approach going forward.

Labor Market Concerns

Powell and the committee are facing conflicting pressures between controlling inflation and ensuring full employment. The FOMC has noted increasing risks to employment, showing that the job market is weakening. A stagnating labor market complicates the situation, potentially pushing the committee toward rate cuts if conditions worsen.

Factors contributing to this labor market slowdown include:

• Reduced labor supply due to lower immigration and labor force participation.
• Weaker labor demand resulting from moderate economic growth and uncertainty.

Upcoming Jobs Report and Predictions

Despite pessimistic views on the labor market, economists anticipate an increase in job numbers in the upcoming jobs report. Goldman Sachs’ David Mericle forecasts the employment rate to stabilize at 4.3%. Additionally, upward revisions are expected for job growth in prior months.

Key predictions include:

• A projected decline of 5,000 government jobs.
• An expected increase of about 50,000 roles in the September report.
• Revisions to July and August job estimates could raise the total job growth by near 100,000.

Given this outlook, expectations of a rate cut at the FOMC’s December meeting seem likely to diminish further as positive job growth may counterbalance the need for a reduction.