The US Federal Reserve agreed to cut interest rates at its December meeting only after a highly nuanced debate about the current risks facing the US economy, according to minutes from the two-day meeting.

Even some of those who supported a rate cut acknowledged that "the decision was carefully balanced or that they could have supported keeping the target range unchanged," given the different risks facing the US economy, according to minutes from the meeting released on Tuesday.

In economic projections released after the December 9-10 meeting, six officials explicitly opposed a cut, and two of that group dissented as voting members of the Federal Open Market Committee (FOMC).

"Most participants" ultimately supported a cut, with "some" arguing that it was the right strategy for the future "that would help stabilize the labor market" after the recent slowdown in job creation.

However, others "expressed concern that progress toward the committee's 2% inflation target had stalled."

"Some participants suggested that, based on their economic outlook, it would likely be appropriate to keep the target range unchanged for some time after the range reduction at this meeting," according to the meeting minutes, which included a divergence of opinion among officials in favor of both tighter and looser monetary policy, an unusual outcome for the central bank that has now occurred at two consecutive meetings.

The quarter-point rate cut agreed to in December lowered the Fed's benchmark overnight rate to a range between 3.5% and 3.75%, the third such move in a row by the central bank, as officials agreed that slowing monthly job creation and rising unemployment warranted a slightly less restrictive monetary policy.

However, as interest rates have declined, and moved closer to a neutral level that neither discourages nor encourages investment and spending, opinion at the Fed has become more divided on how many more cuts to make. New projections released after the December meeting indicated only one rate cut is expected next year, while language in the new policy statement suggests the Fed is likely to keep the current rate unchanged until new data indicates that inflation has returned to a downward trend or unemployment has risen more than expected.

The lack of official data during the 43-day government shutdown, an information gap that has yet to be fully filled, continues to shape policymakers' outlook and views on how to manage risks.

Some opponents or skeptics of the latest rate cut "suggest that the arrival of a significant amount of labor market and inflation data during the upcoming inter-meeting period will be helpful in making judgments about whether a rate cut is warranted."

Data collection continues, with employment and consumer price data for December due on January 9 and 13, respectively, returning to the normal release schedule.

The Fed next meets on January 27-28, with investors currently expecting the central bank to keep its benchmark interest rate unchanged. (alg)

Source: Reuters.com