Instant View: July FOMC minutes – 25 basis points cut seen as a mid-cycle adjustment

(Reuters) – The Federal Reserve debated cutting interest rates more aggressively at its July meeting, although central bankers were united in wanting to avoid the appearance of being on a path to more rate cuts, minutes showed.

FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo

The U.S. central bank cut rates by 25 basis points at the close of the meeting, with records published on Wednesday showing broad concern among policymakers over a global economic slowdown, trade tensions and sluggish inflation.

Story:

KEY POINTS:

* A couple Fed policymakers would have preferred a 50 bp rate cut in July to address low inflation

* Most policymakers viewed a 25 bp cut as part of a recalibration of policy stance, or mid-cycle adjustment, in response to recent changes in economic outlook

* Several policymakers favored maintaining the same target range at July meeting

* Policymakers generally favored an approach that avoided any appearance of the Fed being on a preset course

MARKET REACTION:

STOCKS: S&P 500 .SPX hold gains, last up 0.85%

BONDS: U.S. Treasury 2-year note yield US2YT=RR slips to 1.5365%; 10s US10YT=RR slip to 1.5537%

FOREX: The U.S. dollar index .DXY little changed, up 0.03%

COMMENTS:

MICHAEL POND, HEAD OF GLOBAL INFLATION-LINKED RESEARCH, BARCLAYS, NEW YORK

“(The minutes) were fairly balanced. There were some participants calling for 50 basis points and some arguing for no change, so the 25 basis point (cut) that was implemented was a compromise between the two. What will be particularly interesting as we head into Jackson Hole meetings will be the update from Fed Chair Powell. There has been a significant amount of news, market events and data since this FOMC meeting. Trade war rhetoric has heated up significantly, volatility has increased, but on the other side, we have got a bit of strength in data both on inflation as well as retail sales.”

“This doesn’t change our view of where things are headed because it was quite balanced between those arguing for more and those arguing for less. And there has been a significant amount of development since the meeting.”

“The market doesn’t seem to have moved too much on these minutes, and that seems about right.”

WILLIE DELWICHE, INVESTMENT STRATEGIST, BAIRD, MILWAUKEE

“The Fed clearly wants to be flexible. They are clearly worried about some of the global tensions that are out there, whether it is trade or Brexit or some of those international developments.”

“But they do see it as something of a mid-cycle adjustment, so not the beginning of a new and sustained easing cycle, but just adjusting to the world as they are seeing it and the risks that they are seeing right now.”

“The stocks still want to see any evidence that the Fed is going to cut rates. That’s what stocks are banking on. I don’t think there’s anything in here that would be an ‘aha!’ warning sign to stocks that they’re not going to get another rate cut. But I also think that longer-term picture of where the market sees rates ending up and where the Fed sees rates ending up might be different right now, and that’s going to have to get resolved at some point.”

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source: reuters.com