MCLEAN, VIRGINIA – One week before Federal Reserve officials gathered in Washington this month, they were split over how fast to lower interest rates.
The economy was not flashing the kind of obvious warning signs that would typically prompt an aggressive response from the US central bank. But a notably weak run of jobs data, including the August employment report on Sept 6, had convinced Chair Jerome Powell that a bigger-than-usual rate cut was necessary to insure against rising risks to the labour market.
A pair of inflation reports that week showing price pressures continuing to ease sealed the deal.
When the Fed issued its decision on Sept 18, forecasts showed a narrow majority of officials favoured reducing their benchmark rate a full percentage point or more this year – implying at least one big cut. But a sizable minority penciled in just 75 basis points, suggesting support for three smaller moves.
In the end, however, all but one of the 12 voting members of Federal Open Market Committee (FOMC) supported Mr Powell’s bid to start big with a half-point cut. That is a key victory for the chair as he tries to prolong an economic expansion many predicted would be over long before now. The lone holdout, Governor Michelle Bowman, called instead for a more measured pace of cuts to avoid undermining progress on inflation.
“The chair always has enormous power,” said Mark Spindel, founder of Potomac River Capital and co-author of a book on the Fed and Congress. “There is a clear success story in Mr Powell’s ability to get all but Bowman on board, and he is a more powerful chairman now.”
Speaking at a post-meeting press conference, Mr Powell called the half-point cut “a good strong start” that made sense from “an economic standpoint and
