The Federal Reserve is moving closer to the long-awaited rate reduction. According to their latest meeting minutes, a cut in September seems more likely.
On July 30 and 31, Fed officials expressed a general consensus that, as long as economic data continue on their current course, it would be appropriate to ease policy during the next Fed meeting.
Participants expect a cut in rates by a ‘vast majority’
According to the minutes released Wednesday, “the majority” of participants thought it appropriate to lower the Federal Funds Rate at the September meeting, if the economic conditions were stable.
The rate reduction would be the first since emergency measures were taken in the beginning of the COVID-19 Pandemic.
The Federal Open Market Committee (FOMC), which met in July, voted unanimously to keep the benchmark rate unchanged. However, officials discussed the possibility of reducing rates sooner.
In the summary, it was mentioned that “several” participants had discussed a reduction of 25 basis points (equivalent 0.25%), at the meeting in July. This is due to the recent improvements on inflation as well as the increasing unemployment rate.
The minutes, although the word “several”, suggests a small group of policymakers, emphasized that policymakers were confident about inflation trends. They also indicated a willingness to relax policy in the event conditions remained favorable.
Recent inflation figures: What do they say?
Recent data showed a marked decrease in the price pressures. This reinforces the idea that the Fed is achieving its 2% inflation target.
The minutes raised some questions about the state of the labour market.
The Bureau of Labor Statistics has released a preliminary revision that suggests that the reported gains between April 2023 and March 2024 were likely exaggerated.
The uncertainty surrounding the accuracy of employment data has led to an increase in concerns over the state of the labor market.
The Fed, despite these mixed signals and a moderated increase in job growth, decided to keep rates at the current level of 5,25-5.50%. This is the highest rate for 23 years.
Investors were concerned about the speed of the Fed’s monetary policy changes, and the market reacted positively to its July meeting. However, subsequent sessions showed declines.
Reports of an unanticipated rise in claims for unemployment and contraction in manufacturing dampened the market’s sentiment the day following the Fed meeting.
The July Nonfarm Payrolls Report, which showed only 114,000 jobs added and an increase in unemployment to 4.3%, heightened calls for more aggressive rates cuts.
Recent data have alleviated some concerns.
The number of jobless claims has returned to historic norms. Inflation pressures continue to decrease, while retail sales have exceeded expectations.
The Fed’s prudent approach in managing the economy is aligned with traders’ expectations that it will cut rates this September, despite ongoing labor market concerns.
The Fed’s September meeting will determine whether or not it adjusts interest rates. This is a crucial moment in monetary policy as well as market expectations.
This article Fed minutes suggest rate cuts in September due to easing inflation, labor market concerns and a likely Fed rate cut appeared first on ICD
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