The July meeting minutes reveal that a “vast majority” of policymakers considered it “appropriate” to lower borrowing costs.
Last month, Federal Reserve officials indicated their readiness to begin cutting interest rates at their September meeting due to slowing job growth and easing inflation.
Minutes from their July meeting, released on Wednesday, showed that the “vast majority” of Fed officials believed “it would likely be appropriate to ease policy at the next meeting” if the economic data met expectations.
During the July meeting, the Federal Open Market Committee kept rates steady at a 23-year high of 5.25-5.5 percent, but there was a consensus among policymakers on the need to start cutting rates in September.
Since the meeting, weaker-than-expected labor market data and softer inflation figures have strengthened the case for a rate cut.
The meeting record noted that “a majority of participants remarked that the risks to the employment goal had increased, and many participants observed that the risks to the inflation goal had decreased.”
The minutes also revealed growing concerns among some Fed officials about a deeper economic slowdown and the risk of the US central bank being too slow to respond.
“Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration. Many participants emphasized that reducing policy restraint too late or too little could unduly weaken economic activity or employment,” the minutes stated.
Several Federal Reserve officials believed there was a “plausible” case for a rate cut during the July meeting.
The Fed’s next meeting in September is scheduled just six weeks before the US presidential election.
Chair Jay Powell, who is expected to speak at the highly anticipated annual Jackson Hole central bank conference on Friday, hinted at a possible rate cut in September immediately after the July meeting. However, he emphasized the need for “more good data” to ensure inflation is trending toward the 2 percent target before making a policy shift.
The minutes revealed that US central bankers felt more confident that inflation was on track to return to the 2 percent target—a critical benchmark before moving forward with rate cuts. They anticipated that slowing economic growth and the reduction of Americans’ savings would help alleviate price pressures.
The minutes have strengthened market confidence in a rate cut for September, according to Wylie Tollette, chief investment officer at Franklin Templeton Investment Solutions. “I think the Fed minutes have confirmed that that’s very likely to happen now,” he stated.
The release of the minutes coincided with the US labor department’s annual revisions, revealing that job growth in the economy had been significantly weaker over the year to March than initially reported, further intensifying concerns about a slowing labor market.
The Bureau of Labor Statistics (BLS) announced on Wednesday that the number of jobs added to the US economy in the 12 months leading up to March is likely to be revised downward by 818,000. Previously, BLS data suggested that US employers had added 2.9 million jobs during that 12-month period from April 2023 until March.
The revisions reported on Wednesday are preliminary and will be finalized early next year.
Following the release of the revised jobs data and the Fed minutes, US government bond yields moved lower, indicating rising prices. By late afternoon in New York, the policy-sensitive two-year yield had decreased by 0.06 percentage points to 3.93 percent, while the 10-year yield fell by 0.01 percentage points to 3.8 percent.
Ian Lyngen, head of US interest rate strategy at BMO Capital Markets, remarked that the revised figure “was on the upper end of the negative estimates that the market had heading into the event,” but noted that it wasn’t “anything paradigm-shifting.” He added that last year’s release initially showed 306,000 fewer jobs than first reported, but that figure was later revised to a decline of 187,000.
These revisions come at a delicate time for the economy. While consumers continue to spend as inflation eases, concerns about labor market weakness are heightening fears of a recession if the Fed does not cut borrowing costs swiftly enough.
