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The Fed discussed major interest rate cuts, wanted to avoid appearing on the path for more cuts



WASHINGTON (Reuters) – The Federal Reserve discussed cutting interest rates more aggressively at the last meeting, though central bankers were gathered to avoid looking to be heading for more interest rates, records from the meeting show.

FILE PHOTO: The Federal Reserve Board building on Constitution Avenue is pictured in Washington, USA, March 27, 2019. REUTERS / Brendan McDermid / File Photo

The US central bank cut interest rates by 25 basis points at the end of its 30- July 31, with a summary of the meeting published Wednesday, showing widespread concern among policy makers about a global economic downturn, trade tensions and weak inflation.

"A few participants indicated that they would have preferred a 50 basis point reduction," according to the report, which added that politicians favoring such a move were concerned that inflation was too low.

Since that meeting, the Fed has come under increasing pressure to reduce borrowing costs more, including a call by US President Donald Trump on Wednesday that the Fed should reduce the reference rate.

Bold policy makers, however, agreed at their July 30-31 meeting that they did not want to give the impression that they were planning more interest rate cuts.

"Participants generally favored an approach where policies would be guided by incoming information … and which avoided any behavior by following a preset course," according to the report.

KEEPING FLEXIBLE

U.S. Shares held on higher gains after the minutes were issued, with the benchmark S&P 500 index. SPP up by about 0.75% a day.

“The Fed clearly wants to be flexible. They are clearly worried about some of the global tensions that are out there, whether it is trade or Brexit or some of the international developments, says Willie Delwiche, investment strategist at Baird in Milwaukee.

The return on longer-dated US government securities fell to today's lows. The 10-year note US10YT = RR yield fell to 1.55%, while the 30-year bond US30YT = RR fell to close to the key level of 2%, last trading at 2.02%. It fell below 2% for the first time ever last week as reduced expectations of US economic growth drove demand for secure assets.

The dollar weakened fractionally against a basket of major trading currencies.

The comments Wednesday by Trump, who has repeatedly criticized the Federal Reserve's policies, come as he tries to downplay concerns that a US-China trade war could weigh on the US economy and trigger a possible recession before the November 2020 presidential election. [19659004] Minneapolis Federal Reserve Bank President Neel Kashkari, who does not have a vote in the Fed's monetary policy committee this year but participates in political discussions, urged the Fed on Wednesday to use pledges on future policy, known at the central bank as "forward guidance," to boost

The July 30-31 policy meeting also included discussion of the Fed's research on potential changes to the policy approach, and a number of policy makers said the Fed could have been more aggressive in using bond purchases to combat the recession of 2007-09.

However, policy makers said that tools such as bond buying and future guidance could happen is not enough to eliminate the risk of policy being hampered in the future when the Fed's reference rate is close to zero.

Reporting by Jason Lange; Further reporting from Lewis Krauskopf in New York; Editing by Andrea Ricci

Our Standards: Thomson Reuters Trust Principles.

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