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Comment: FOMC lowers short-term rates 25 bp across the board at October meeting, then hits pause

The FOMC acted as expected and lowered the fed funds target rate range by 25 basis points to 1.50%-1.75%. However, the FOMC also indicated that the Committee is now prepared to pause on future rate cuts.
The statement issued on October 30 was little changed from that of September 18. The assessment of economic conditions received only a slight tweak in saying that business investment and exports “remained weak” after “have weakened” in the previous statement.

What was different from the prior statement was the change in how the FOMC views the upcoming intermeeting period. Like the prior statement, it said, “This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.” The new language added, “The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

At this point the FOMC is probably wanting to take time for the lagged effects of stimulus – if there are to be any – from the rate cuts of July, September, and October to become visible in the economic data. There may already have been a hint of such in the advance estimate of third quarter GDP reported earlier on Wednesday. The economy grew 1.9% in the third quarter compared to 2.0% in the second. The composition of growth is a little different, but essentially the consumer continued to carry the expansion.

It was no surprise the Boston’s Eric Rosengren and Kansas City’s Esther George extended their string of dissents to three. What was a little more interesting was the St. Louis’ James Bullard did not dissent again. He had been sounding a shade less dovish of late, and that he backed off preferring a 50 basis point decrease suggests that the divide among policymakers is less extreme than it had been.

The implementation note confirmed the decisions announced on October 4 for term and overnight repurchase operations through January 2020 and the purchase of Treasury bills through the second quarter 2020.

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