Fed's September minutes revealed: Huge divergence behind a 25 basis point rate cut, Wall Street shifts to defense!

The minutes of the Fed's September FOMC meeting were released today (9th) morning, confirming the anticipated interest rate cut of 25 basis points, adjusting the federal funds rate range to 4.0%–4.25%. However, the minutes revealed a growing divide among Fed officials regarding the future path of interest rates, with most officials believing that further cuts are necessary this year, but struggling to reach a consensus on the urgency of sticky inflation and a weak labor market. Wall Street's immediate reaction was cautious defense: the S&P 500 index slightly fell by 0.4%, while U.S. Treasuries and the dollar strengthened simultaneously. The market is focusing on the contradictions in policy signals, reflecting that the rate cuts did not bring obvious safety, leading to a flow of funds into safe-haven assets.

Minutes Focus: Internal Tug of War Under a 25 Basis Point Rate Cut

The meeting minutes show that there are significant differences of opinion within the Fed regarding the next steps in monetary policy, highlighting the difficult balance it faces under the dual pressure of "suppressing inflation" and "maintaining employment."

1. Consensus and disagreement on interest rate cuts: Although the committee ultimately decided to cut interest rates by 25 basis points, the minutes revealed:

· Most officials believe that policy has moved closer to "neutral" to ease the slowdown in employment and cope with the decline in inflation.

· However, there is a huge divergence among committee members regarding whether further rate cuts are necessary for the remainder of the year: 10 officials suggested that they expect two more rate cuts; while 9 officials believe that the number of rate cuts should be one or less.

· A minority of committee members希望保持现状, and some members支持 a one-time降息 of 50个基点, reflecting differing concerns about the stickiness of inflation.

2. Inflation Risk Warning: Several officials are concerned that if inflation remains at its current level for too long, long-term inflation expectations may be re-anchored. Furthermore, they believe that financial conditions do not pose particularly strong restrictions on inflation, emphasizing the necessity of adopting a cautious approach.

3. Balance sheet reduction discussion launched: The minutes also pointed out for the first time that a number of participants began to discuss "when to stop shrinking the balance sheet", emphasizing the need for balance sheet strategies and interest rate tools to be aligned.

Wall Street Leans Defensive: An Atypical Response of Stocks Falling and Bonds Rising

After the minutes were released, the market's cautious reaction was completely different from the usual logic of interest rate cuts (stocks rise, bonds fall, dollar weak), reflecting that investors have instantaneously priced in the uncertainty regarding the Fed's policy outlook.

Stock markets under pressure: Investors reduced their risk exposure, with the S&P 500 falling 0.4%, the Nasdaq 100 down 0.58%, and the small-cap index Russell 2000 plunging 1.1%. Fund managers are focusing on the "contradictory policy signals" rather than the easing benefits brought by interest rate cuts.

Safe-haven assets strengthen: In stark contrast to the stock market, the yield on the 10-year U.S. Treasury bond has fallen (bond prices have risen), and the dollar index has risen. This flow of funds into defensive assets indicates that the interest rate cuts have not provided the market with a clear sense of security, and there are still doubts about economic momentum and the inflation path. Some traders warn that if inflation heats up again, the benefits brought by interest rate cuts may be quickly recouped by the bond market.

Looking Ahead: Data and Trust are Key

The September minutes did not outline a blueprint for the Fed's next actions, as policy divergences and a murky economic outlook intertwined, greatly increasing the market's reliance on subsequent data.

Futures bets are dispersed: The futures market still bets on at least two rate cuts next, but the contract prices show a dispersed probability, and the market has not formed a unified expectation on the timing and number of rate cuts.

Data Focus: Investors will closely await subsequent data such as employment reports, core PCE (Personal Consumption Expenditures Price Index), and consumer confidence to assess whether the Fed has room for further easing.

Impact on the real economy: Changes in short-term interest rates will affect the real economy through credit costs and the financial environment. Under policy uncertainty, corporate capital expenditure and household consumption confidence will become key observation indicators.

Conclusion

The internal opinion tug-of-war revealed in the Fed's September meeting minutes is a direct reason for Wall Street's cautious trend. Under the dual goals of curbing inflation and supporting employment, the Fed has not yet formed a clear direction. For global investors, the key is no longer a simple count of interest rate cuts, but how decision-makers maintain the credibility and predictability of policies amid diverging economic signals. In the coming months, every piece of economic data and every public statement from officials will continue to influence the flow of global capital.