If the Federal Reserve’s Federal Open Market Committee decision on interest rates at the end of July wasn’t strong enough, there is another chance to evaluate the same data from that time all over again. The Federal Reserve has released the minutes of the FOMC meeting and the interpretation that Jerome Powell’s “mid-cycle adjustment” may not have addressed some of the actual concerns that were in the room.

As a reminder, the FOMC’s decision was to lower fed funds by a 0.25% to a new target range of 2.00% to 2.25%. The good news is that the minutes did not contain any surprises which scared the stock and bond markets. The bad news is that all of these calls for endless rate cuts may be louder than what the Federal Reserve itself wants to actually do.

The July minutes showed that the Federal Reserve was stressing flexibility and a need to review incoming information for making decisions about additional future interest rate moves. That said, most participants did think of this as the mid-cycle adjustment or a recalibration rather than as the start of an aggressive interest rate cutting cycle.

After years of rates being at nearly zero, inflation had tended to run modestly below the committee’s longer-run goal of 2% in recent years as some indicators of longer-run inflation expectations have stubbornly remained at low levels.

One additional consideration was that multiple central banks had acted to lower rates to provide additional stimulus. Many of the Fed’s contacts in the business and financial community still viewed U.S.-China trade risks being skewed to the downside and the risks of a no-deal or hard-exit version of Brexit had increased.

The minutes from the July FOMC meeting also addressed how the financial markets had been growing the expectation of rate cuts since the prior meeting. The minutes said:

Over the intermeeting period, financial market developments reflected noticeable shifts in expectations for monetary policy in response to Federal Reserve communications, economic data releases, and trade policy developments. Federal Reserve communications were generally regarded as more accommodative than had been anticipated, exerting downward pressure on measures of the expected path for the federal funds rate. However, some better-than-expected economic data releases and a slight improvement in the outlook regarding trade partially offset these declines. Yields on nominal Treasury securities were little changed on net. Equity prices increased, corporate bond spreads narrowed, and inflation compensation rose modestly. Financing conditions for businesses and households were little changed over the intermeeting period and remained generally supportive of spending.

Also worth noting in the minutes was how much the Fed saw the market-based indications pricing in lower rates ahead. The minutes showed that market-based expectations were for the federal funds to move lower by about 60 basis points in 2019 and about 35 basis points in 2020.

The full FOMC minutes are available for review.

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