According to the summary, policymakers are prepared to begin loosening policy if the statistics continue to cooperate and they are optimistic about the path of inflation.
At their July meeting, Federal Reserve policymakers took a step toward the long-awaited interest rate decrease, but they stopped short of going all the way, signaling that a September cut had become more likely, according to minutes made public on Wednesday.
According to the report, “the vast majority” of attendees of the meeting held July 30-31 “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”
The September reduction, which would be the first since the emergency easing in the early stages of the Covid crisis, is completely priced into the markets.
Although every member of the Federal Open Market Committee, which sets interest rates, voted to keep benchmark rates unchanged, a certain number of officials expressed a preference to begin relaxing at the July meeting rather than wait until September.
According to the paper, “a number of [meeting participants] noted that they could have supported such a decision or that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting.”
A drop of 25 basis points would be equal to a quarter of a percentage point since one basis point is equal to 0.01 percentage points.
“Several” is a very modest number in the terminology used by the Fed in its minutes, which do not identify specific policymakers or indicate the number of them who felt a particular way.
But the summary made it plain that authorities were comfortable with the way inflation was going and that, should the data continue to cooperate, they are prepared to begin loosening policy.
The attitude was dual: some expressed worries about the job market and the difficulties that people, especially those at the lower end of the income range, were facing in the current climate, while inflation indicators had revealed a significant reduction of price pressures.
The minutes said that “participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent with regard to the outlook for inflation.” “Almost all participants noted that inflation would probably continue to decline in the upcoming months due to the factors that had contributed to the recent disinflation.”
“Many” officials pointed out that “reported payroll gains might be overstated” in relation to the job market.
In a first review of the nonfarm payroll figures for the months of April 2023 through March 2024, the Bureau of Labor Statistics revealed earlier on Wednesday that increases could have been exaggerated by more than 800,000.
The minutes said that “many participants noted that the risks to the inflation goal had decreased, and the majority of participants remarked that the employment goal was now more risky.” “Some participants highlighted the possibility that the labor market’s gradual improvement could turn into a more severe deterioration.”
The committee reported that both employment growth and inflation had “eased” in its post-meeting statement. It did, however, decide to maintain its benchmark funds rate, which is already at its highest in 23 years and is officially targeted in a range of 5.25% to 5.50%.
The day of the Fed meeting saw a rise in markets, but in the days that followed, the same markets crashed due to concerns that the central bank was relaxing monetary policy too slowly.
The Labor Department revealed an unexpected rise in jobless claims the day following the conference, and an additional indicator revealed a larger-than-expected contraction in the manufacturing sector. When the nonfarm payrolls data for July revealed that just 114,000 new jobs had been created and that the unemployment rate had increased to 4.3%, the situation only grew worse.
There were increasing calls for the Fed to make rapid cuts, and some even suggested that the institution hold an emergency meeting to allay fears that the economy was collapsing rapidly.
But the terror was just momentary. Later data releases revealed that as pricing pressures eased, unemployment claims began to slowly return to historical norms. Additionally, better-than-expected retail sales numbers relieved concerns about consumer pressure.
However, more recent data has indicated labor market strains, and traders mostly anticipate rate cuts from the Fed starting in September.
