The summary indicated that "the vast majority" of participants at the July 30-31 meeting agreed that, if the data continued to align with expectations, it would likely be appropriate to ease policy at the next meeting. Markets are already fully pricing in a September rate cut, which would be the first since the emergency measures implemented during the early days of the Covid crisis.
At their July meeting, Federal Reserve officials edged closer to a much-anticipated interest rate reduction, though they held off for the moment. However, minutes released on Wednesday revealed that a September cut had become increasingly likely. According to the summary, "the vast majority" of participants at the July 30-31 meeting noted that if the data continued to align with expectations, easing policy at the next meeting would likely be appropriate.
Markets have fully priced in a September rate cut, which would mark the first since the emergency easing during the early days of the Covid crisis. Although all voting members of the Federal Open Market Committee opted to keep benchmark rates steady, there was a tendency among some officials to favor starting the easing process in July rather than waiting until September.
The document noted that "several participants" at the meeting observed that recent progress on inflation and the rise in unemployment provided a strong case for reducing the target range by 25 basis points at this meeting or that they could have supported such a decision. A basis point is equal to 0.01 percentage point, meaning a 25 basis point reduction would equate to a quarter percentage point cut.
In the language used by the Fed in its minutes, where names are not mentioned and the exact number of policymakers is unspecified, "several" typically refers to a relatively small group. However, the summary emphasized that officials were confident in the inflation trajectory and were prepared to begin easing policy if the data continued to support such a move.
inflation trajectory and were prepared to begin easing policy if the data continued to support such a move.
The sentiment expressed was twofold: inflation indicators showed a significant easing of price pressures, while some members raised concerns about the labor market and the difficulties faced by households, especially those with lower incomes, in the current environment.
"Regarding the inflation outlook, participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent," the minutes stated. "Almost all participants noted that the factors contributing to recent disinflation would likely continue to exert downward pressure on inflation in the coming months."
Regarding the labor market, "many" officials observed that "reported payroll gains might be overstated." Earlier on Wednesday, the Bureau of Labor Statistics released a preliminary revision of the nonfarm payroll numbers from April 2023 through March 2024, indicating that gains may have been overstated by more than 800,000.
According to the minutes, "a majority of participants remarked that the risks to the employment goal had increased, while many noted that the risks to the inflation goal had decreased." Additionally, "some participants expressed concern that a further gradual easing in labor market conditions could potentially lead to a more significant deterioration."
Markets initially rose on the day of the Fed meeting but plunged in the following sessions as concerns grew that the central bank was moving too slowly in easing monetary policy.
The day after the meeting, the Labor Department reported an unexpected surge in unemployment claims, while another indicator revealed a sharper-than-expected contraction in the manufacturing sector. The situation deteriorated further when the July nonfarm payrolls report showed job creation of only 114,000 and a further increase in the unemployment rate to 4.3%. Calls for the Fed to implement a swift rate cut intensified, with some advocating for an intermeeting move to address concerns about a rapidly deteriorating economy.
However, the panic proved to be brief. Later data releases showed jobless claims returning to normal historical levels, inflation indicators suggested easing price pressures, and retail sales figures exceeded expectations, easing concerns about consumer strain.
More recent indicators, however, have highlighted ongoing stresses in the labor market, leading traders to largely anticipate that the Fed will start cutting rates in September.
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