US Economy: The Certainty of Rate Cuts from the FOMC Minutes

■ The minutes of the September FOMC meeting show that inflation concerns remain deeply rooted within the Federal Reserve.  

■ However, vigilance against downside risks to employment is even stronger, and the likelihood of an additional preemptive rate cut in October remains high. 

    Since October 1st, the US government has partially shut down again after a seven-year pause. The US Senate voted down the budget bill on the 8th, suggesting the shutdown could be prolonged. According to estimates by the Congressional Budget Office (CBO), approximately 750,000 civil servants will be furloughed. Past partial government shutdowns have had a limited impact on the US economy, and this one likely will be no different. However, the US government hinted at the possibility of laying off some of these furloughed workers. Since the government aims to reduce the number of civil servants by about 300,000 this year, this statement may serve as a negotiating tactic. Nonetheless, this shutdown is probably more likely to significantly dampen personal consumption than previous closures. 

   The minutes of the Federal Open Market Committee (FOMC) meeting held on September 16th and 17th show that some participants remained cautious about a September rate cut due to inflation concerns. At its September meeting, the FOMC decided to implement a 25-basis-point interest rate cut in response to downside employment risks revealed in the July and August employment reports. The only dissenter was Governor Milan, who advocated a 50-basis-point cut. The minutes noted that "most participants viewed that, before the meeting, downside risks to employment had increased, while upside risks to inflation had decreased or not increased," thus supporting a policy rate cut. On the other hand, "a few participants viewed that maintaining policy at this meeting made sense and could support such a decision." While one participant's policy rate forecast suggested no further rate cuts would be necessary this year, the minutes imply that several participants (possibly including non-voting members) might be cautious about this. Looking ahead, the dot plot shows that nine participants expect two more rate cuts this year. While this remains the mainstream forecast, disagreement persists within the FOMC. Recent speeches by senior Fed officials also suggest a wait-and-see stance regarding further rate cuts due to persistent inflation concerns and strong economic data.  

   However, the minutes as a whole clearly indicate an increased sense of caution regarding the slowdown in the labor market and downside risks. Notably, concerns about sluggish hiring and quitting rates, along with the concentration of job growth in specific sectors, have sparked considerable discussion. The September employment report was delayed due to the partial government shutdown, but if the shutdown ends within one to two weeks, the Federal Reserve may still receive relevant data before the October 28-29 FOMC meeting. Even with this delay, private labor market indicators released during this period still point to a gradual weakening of the job market, leading to a high likelihood of a 25-basis-point preemptive rate cut in October.