Many Federal Reserve officials said at their June meeting that the case for lowering interest rates this year "had strengthened," but the central bank was divided on whether rate cuts would end up being necessary, minutes of the meeting show.
The minutes highlight a split among Fed officials as they consider cutting interest rates this year, potentially as soon as the next Federal Open Market Committee meeting at the end of July. The Fed's June meeting resulted in officials keeping the federal funds rate at a target range of 2.25% to 2.5% but signaling openness toward loosening monetary policy.
Many at the Fed said the economy "appeared to have lost some momentum" and that risks to the economic outlook "were now weighted to the downside," the minutes show. While Fed officials generally agreed that downside risks to the U.S. economy had "risen materially," a few saw the potential for a positive surprise if trade negotiations "were resolved favorably and business sentiment rebounded sharply."
Many Fed officials thought lower interest rates "would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook." But several other Fed officials were not ready to project near-term rate cuts, though they said lower rates "could well be appropriate if incoming information showed further deterioration in the outlook."
The regularly scheduled release of the minutes came shortly after Fed Chairman Jerome Powell wrapped up his testimony in the U.S. House, where his dovish tone helped boost investor expectations of looser Fed policy.
Only a couple of Fed officials backed lowering the federal funds rate at the June meeting, the minutes show. That likely was St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari, who have called for lower rates to guard against downside risks and help get inflation back to the Fed's 2% goal. The central bank's favored gauge of underlying inflation rose by 1.6% year over year in May. A handful of other Fed officials have said it may be too early for a rate cut.
A notable outcome of the June meeting was Fed officials' broad-based shift downward in their quarterly outlook for interest rates. Eight Fed officials projected they would support easier policy this year, while eight preferred keeping rates unchanged and one official saw a rate hike. That tilted the median view toward keeping rates flat instead of cutting them, though a majority of Fed officials projected they would lower rates in 2020.
Fed officials discussed "a variety of reasons that would call" for lowering rates at the meeting.
Several thought easier policy "could help cushion the effects of possible future adverse shocks to the economy and, hence, was appropriate policy from a risk-management perspective." Some believed the continued shortfall in inflation could lead to a further drop in inflation expectations, and a few believed inflation expectations have already dropped to levels that call for action from the Fed.