The minutes of the Fed meeting held in July revealed that officials are getting closer to making a decision on the long-awaited rate cut, with the likelihood that this will happen in September growing. The minutes indicated that the majority of board officials are strongly inclined towards lowering the interest rate at the next meeting.
The document added that many participants in the meeting were inclined to immediately reduce interest in July, noting that the economic data obtained support this decision. The discussions have shown that the “overwhelming majority” of the participants of the meeting held on July 30 and 31 noted that if the economic data continues to develop as expected, the easing of monetary policy at the next meeting will be appropriate.
According to the minutes, the participants in the meeting confirmed that the recent economic data have strengthened their confidence that inflation is heading towards the target set by the council at 2%. Although all members of the Federal Open Market Committee, which sets interest rates, voted in favor of keeping rates unchanged, there is a tendency among some officials to start the monetary easing process at the July meeting instead of waiting until September.
The document explained that many officials consider the recent improvement in inflation rates and slight increases in the unemployment rate to be a reasonable justification for reducing the target range of interest rates by 25 basis points at the previous meeting, or they were ready to support such a decision. This reduction expected by the markets in September will be the first of its kind since the emergency mitigation measures were taken at the beginning of the covid-19 crisis.
The minutes indicated that officials are confident about the direction that inflation is taking, and they are ready to start easing monetary policy if economic data continue to support this decision. Inflation indicators showed a noticeable decline in price pressures, while some officials expressed concern about the labor market and the economic difficulties faced by low-income families in the current situation.
The minutes stressed that “almost all participants” expect that the factors that contributed to the recent decline in inflation will continue to put pressure on inflation rates in the coming months.
Regarding the labor market, a number of officials noted that salary gains may be overstated, adding that the risks to the employment target have increased, while the risks related to inflation have decreased.
Fed Chairman Jerome Powell is expected to deliver an important speech next Friday at the annual meeting of the board in Jackson Hole, Wyoming. In this speech, Powell will address the ongoing battle against inflation, while providing investors with reassurances about the ability of monetary policymakers to avoid a sharp economic slowdown. This speech comes at a sensitive time for the US central bank and the US Treasury bond market worth 27 trillion dollars, as the board prepares to reduce borrowing costs seven weeks before the presidential election, a move considered very sensitive and puts them under intense scrutiny.
