FOMC Policy Makers Support Holding Interest Rates Steady

Though the labor market remained strong and GDP was expanding at a moderate rate, policy makers at last month's FOMC meeting "generally agreed" that downside risks to the economy, due to trade tensions and slowing global growth, had "risen materially". If risks to the economy were sustained, "many" of the 15 FOMC members agreed that a shift to rate cuts would be warranted saying lower rates would help cushion possible economic shocks and also boost inflation expectations. Doves, some citing the inverted yield curve. said they would welcome higher-than-target inflation (plus 2 percent) though hawks argued that low inflation, because of strength in the labor market, could prove transitory and they warned that rate cuts could overheat the labor market and lead to imbalances for the financial markets. But nearly all of the participants, at 9 to 1 among voting members, supported holding rates steady in June. Despite the shift to a rate-cut bias, debate was lively with no certainty of a rate cut at subsequent meetings.