Fed Minutes July 2024

Federal Reserve officials moved closer to a long-awaited rate cut at their July meeting but paused briefly, saying a September rate cut had become increasingly likely, minutes released Wednesday showed.

“The vast majority” of participants at the July 30-31 meeting “noted that, if data continued to come as expected, it would likely be appropriate to relax the policy at the next meeting,” the summary said.

Markets have fully priced in a cut in September, which would be the first since emergency easing in the early days of the Covid crisis.

While all voters on the rate-setting Federal Open Market Committee voted to keep interest rates stable, there was a push among an unspecified number of officials to start easing at the July meeting rather than wait until September.

The document stated that “several [meeting participants] noted that recent progress on inflation and the increase in the unemployment rate at this meeting had provided a plausible argument for lowering the target range by 25 basis points, or that they could have supported such a decision.”

One basis point is 0.01 percentage point, so a cut of 25 basis points would amount to a quarter of a percentage point.

In the language the Fed uses in its minutes, which does not name names or specify how many policymakers felt a certain way, “several” is a relatively small number.

However, the summary made clear that officials were confident about the direction of inflation and are willing to ease policy if the data continues to cooperate.

The sentiment was twofold: inflation figures had shown that price pressures had eased significantly, while some members expressed concerns about the labor market and the difficulties facing households, especially those at the lower end of the income spectrum, in the current environment.

“On the outlook for inflation, participants felt that recent data had increased their confidence that inflation was moving sustainably towards 2 percent,” the minutes said. “Nearly all participants noted that the factors that contributed to the recent disinflation are likely to continue to exert downward pressure on inflation in the coming months.”

In the labor market, “many” officials noted that “reported wage increases may be exaggerated.”

Earlier Wednesday, the Bureau of Labor Statistics said in a preliminary review of nonfarm payroll figures from April 2023 through March 2024 that profits may have been overestimated by more than 800,000.

“A majority of participants noted that risks to the employment target had increased, and many participants noted that risks to the inflation target had decreased,” the minutes said. “Some participants highlighted the risk that further gradual easing of labor market conditions could turn into a more serious deterioration.”

In its statement after the meeting, the committee noted that job growth had moderated and inflation had also “eased.” However, the country has chosen to hold the line at its benchmark fund rate, which is currently in a range of 5.25%-5.50%, the highest in 23 years.

Markets rose on the day of the Fed meeting but slumped in subsequent sessions on concerns that the central bank was moving too slowly in easing monetary policy.

The day after the meeting, the Department of Labor reported an unexpected spike in unemployment claims, while a separate indicator showed the manufacturing sector shrank more than expected. Things got worse when the nonfarm payrolls report for July showed that only 114,000 jobs had been created and the unemployment rate had risen again to 4.3%.

Calls for a quick cut at the Fed grew, with some even suggesting the central bank take intermeeting action to counter concerns that the economy was sinking rapidly.

However, the panic was short-lived. Subsequent data releases showed that unemployment benefit claims returned to normal historical levels, while inflation indicators showed price pressures easing. Retail sales figures were also better than expected, easing concerns about consumer pressure.

However, more recent indicators point to tensions in the labor market, and traders largely expect the Fed to start cutting rates in September.