Following its first rate cut in 11 years, the Federal Open Market Committee said its future rate policy would not be tied to a "preset course," according to minutes released Wednesday from its July 30-31 meeting.
The committee lowered the target range for the federal funds rate by 25 basis points to 2% to 2.25% three weeks ago. Members took note of "sluggish" fixed-investment spending by U.S. businesses coupled with slow manufacturing output, which suggests "that risks and uncertainties associated with weak global economic growth and in international trade were weighing on the domestic economy," the minutes said.
Eight of the 10 committee members voted to lower the funds rate. At the meeting, those members said that the rate cut "should be viewed as part of an ongoing reassessment of the appropriate path of the federal funds rate that began in late 2018," according to the minutes.
The committee hiked rates four times in 2018, most recently in December, and held rates steady at its first four meetings of 2019. In public appearances this year, committee members, including Chairman Jerome Powell, have said that the Fed will be flexible on future rate adjustments.
In March, FOMC members reduced the number of projected rate hikes in 2019 to zero from two and projected, on average, that the federal funds rate will stay at 2.4% by the end of 2019 and rise to 2.6% by the end of 2020. In June, they projected, on average, the funds rate will fall to 2.1% by the end of 2020.
David Norris, head of U.S. credit at TwentyFour Asset Management, said escalating trade tensions with China and volatility in stock markets since the Fed's vote has led markets to believe a further cut is coming.
"Since the rate cut a few weeks ago, geopolitical concerns have taken center stage, resulting in a meaningful flattening of the U.S. Treasury yield curve," Mr. Norris said. "This, in turn, has invoked fear that perhaps the U.S. economy is in danger of entering a recession towards the middle part of 2020. Certainly, we feel that the risks for such a scenario have increased but see current U.S. economic data are still pointing to slower growth and a Fed trying to orchestrate a soft landing in the face of global economic slowdown."
At a July 31 press conference, Mr. Powell said through the course of 2019, "weak global growth, trade policy uncertainty and muted inflation have prompted the FOMC to adjust its assessment of the appropriate path of interest rates.
"Those issues continue to confront the committee today and should provide the explanation for why the FOMC will reduce the target range for the federal funds rate again at the September FOMC meeting," said Bob Miller, BlackRock's head of Americas fundamental fixed income, in a statement.
The committee's next meeting is Sept. 17-18.
