By Howard Schneider
WASHINGTON (Reuters) -A divided Federal Reserve cut interest rates last month even as policymakers cautioned that lower borrowing costs could risk undermining the fight to quell inflation that has been above the U.S. central bank's 2% target for four and a half years, the minutes from the October 28-29 meeting showed on Wednesday.
"Many participants were in favor of lowering the target range for the federal funds rate," the minutes stated, while noting that some members of that group
also would have been satisfied with leaving rates steady.
Several others opposed the rate cut outright, and "expressed concern that progress toward the Committee's 2% inflation objective had stalled ... while also noting that longer-term inflation expectations could rise should inflation not return to 2% in a timely manner."
In addition, "most participants noted that ... further policy rate reductions could add to the risk of higher inflation becoming entrenched or could be misinterpreted as implying a lack of policymaker commitment to the 2% inflation objective," the minutes added.
The Fed's rate-setting committee voted 10-2 at the meeting to cut the benchmark interest rate by a quarter of a percentage point to the 3.75%-4.00% range, with the two dissents unusually split in favor of both tighter and looser monetary policy.
The minutes suggested a spirited search for compromise as officials grappled with the lack of data, weighed risks of rising inflation against the risks of a falling job market, and even cautioned against the possibility of a "disorderly fall in equity prices" if there was an "abrupt reassessment" of investments in artificial intelligence.
Fed Chair Jerome Powell said in unusually blunt terms in his post-meeting press conference that a rate cut at the Fed's December 9-10 meeting was not a "foregone conclusion."
"There's a growing chorus now of feeling like maybe this is where we should at least wait a cycle" before considering another rate cut, Powell told reporters on October 29.
The "chorus" was described in the minutes, with policymakers cut into three different groups in their discussion of the December meeting.
"Several" participants saw a December reduction as likely appropriate, several others saw lower rates as eventually appropriate though not necessarily as of December, while "many participants" had already ruled out a December cut.
IMPACT OF GOVERNMENT SHUTDOWN
With official data releases suspended ahead of the October meeting due to the recent U.S. government shutdown, officials were left to evaluate alternative information, which may have added to an emerging sense of caution about further monetary easing.
"Many participants agreed that the Committee should be deliberate in its policy decisions against the backdrop of ... two-sided risks and reduced availability of key economic data," the minutes said.
Since the October meeting, investors have pared bets on a December rate cut from greater than 90% odds to a near toss-up. The public comments of Fed policymakers reflect ongoing division in the absence, still, of official data on jobs and inflation.
(Reporting by Howard Schneider; Editing by Paul Simao)
