Minutes released on Wednesday showed that Fed officials moved closer to a long-awaited interest rate cut at their July meeting, but quickly stopped short of saying a September rate cut was increasingly likely.
The summary said an “overwhelming majority” of attendees at the July 30-31 meeting “observed that if data continued to be in line with expectations, it may be appropriate to ease policy at the next meeting.”
Markets have fully priced in a September rate cut, which would be the first since emergency easing in the early days of the coronavirus crisis.
While all voters on the rate-setting Federal Open Market Committee voted to keep the benchmark rate steady, some officials preferred to start easing policy at the July meeting rather than wait until September.
The document states that “some (participants) observed that recent developments in rising inflation and unemployment provided a legitimate rationale for lowering the target range by 25 basis points at this meeting, or that they could have supported such a decision.”
One basis point is equivalent to 0.01 percentage point, so a reduction of 25 basis points is equivalent to a quarter of a percentage point.
“Several” is a relatively small number, according to the term the Fed used in the minutes, which did not mention names or specify how many policymakers had a certain idea.
However, the summary made it clear that officials are confident in the direction of inflation and are ready to begin easing policy if the data continues to match.
Sentiment was twofold: Inflation indicators showed a sharp easing in price pressures, while some members cited concerns about the labor market and the struggles faced by households, especially low-income ones, in the current environment.
Minutes of the meeting: “Regarding the outlook for inflation, participants felt that recent data had strengthened their confidence that inflation would continue to move towards 2%.” “Nearly all participants observed that the factors that have led to recent deflation are likely to continue to increase in the coming years. continued to put downward pressure on inflation.”
On the labor market, “many” officials noted that “reported wage growth may be exaggerated.”
Earlier on Wednesday, the U.S. Bureau of Labor Statistics reported that in a preliminary revision of nonfarm payrolls data for April 2023 to March 2024, growth was likely Exaggerated to more than 800,000.
“Most participants said risks to the employment target had increased, and many participants noted that risks to the inflation target had declined,” the minutes said. “Some participants noted that further gradual easing of labor market conditions could lead to more Serious deterioration.”
The committee noted in a statement after the meeting that job growth had slowed and inflation had “moderate.” However, it chose to keep its benchmark funds rate unchanged, currently targeting 5.25%-5.50%, the highest level in 23 years.
The market rose on the day of the Fed meeting, but fell in the following trading days due to concerns that the Fed would ease monetary policy too slowly.
The day after the meeting, the Labor Department reported an unexpected surge in jobless claims and another indicator showed manufacturing contracted more than expected. Things got worse when the July non-farm payrolls report showed only 114,000 jobs were created, while the unemployment rate rose again to 4.3%.
Calls for the Fed to cut interest rates quickly are growing, with some even suggesting the central bank take action during the meeting to allay concerns about a rapid economic downturn.
However, the panic was short-lived. Subsequently released data showed that initial jobless claims fell back to normal historical levels, while inflation indicators showed that price pressures had eased. Retail sales data also came in better than expected, easing concerns about consumer stress.
However, recent indicators show that the labor market is under pressure, and traders generally expect the Federal Reserve to start cutting interest rates in September.
