“Vast Majority” See September Cut as Appropriate: FOMC Minutes — Evening Brief – 08.21.24
A “vast majority” of Federal Reserve members believe a September interest rate cut is likely appropriate if data unfolds as expected, while “several” members believe there was justification for decreasing interest rates in July, according to the minutes of the July 30-31 Federal Open Market Committee (FOMC) meeting.
The July meeting was the first time since the end of the central bank’s monetary tightening campaign that Fed Chair Jay Powell stated that an interest rate cut was on the table for the upcoming meeting.
“Several observed 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 or that they could have supported such a decision,” the minutes read.
The Fed’s dovishness is noteworthy considering that the central bank’s dot plots suggest only one interest rate decrease this year, when the market now expects three cuts. Moreover, that July was a possibility is interesting, as it would have been highly unusual for FOMC members to act when the market was not already discounting it.
“Some” members noted the risk of “more serious deterioration’ in the labor market. Considering that US job growth was just revised downward by 818,000, it is possible that FOMC members may focus even more on upholding the labor side of their dual mandate.
“The information available at the time of the meeting indicated that U.S. economic activity had advanced solidly so far this year, but at a markedly slower pace than in the second half of 2023,” the minutes read. “Labor market conditions continued to ease: Job gains moderated, and the unemployment rate moved up further but remained low. Consumer price inflation was well below its year-earlier pace but remained somewhat elevated.”
The minutes didn’t reveal anything particularly surprising, but they did show that the Fed is on schedule to loosen monetary policy in September. Since the last FOMC meeting, estimates for interest rate reductions have increased dramatically, from around 170 basis points by the end of 2025 to 215 basis points, albeit with a heavier skew toward 2024.