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According to Westpac analysts, ahead of the latest escalation of trade tensions by President Trump, the July FOMC Minutes make clear that the Committee had varied views on the appropriate stance of policy.

Key Quotes

“While all participants remained constructive on the US’ domestic economy, global uncertainties and the persistent underperformance of inflation in recent years weighed on each member’s assessment to a different degree.”

“The decision to cut at the July meeting was then justified as a “mid-cycle” adjustment prudent for risk management. While some regional Federal Reserve Presidents such as Esther George have stated that, even after the trade escalation, they are not willing to ease policy without evidence of a deterioration in the economy, it is likely that Chair Powell and the majority of the Committee will remain focused on risk mitigation and the continued promotion of trend growth.”

“Though it is unlikely to be unanimous, a follow-up cut in September is therefore all but guaranteed. And, if employment growth continues to weaken as we expect, then further cuts will ensue. While the US economy can weather a prolonged period of weak business investment, a marked deterioration in consumption will quickly put at-trend GDP growth at risk. A pro-active decision to cut twice more past September however should provide enough stimulus to sustain discretionary incomes and confidence amongst consumers, and hence keep growth at trend.”