The Federal Reserve meeting minutes released on Wednesday (July 3) showed that Fed officials indicated during the June meeting that although inflation is heading in the right direction, the pace is not fast enough to warrant a rate cut. Participants in the meeting on June 11 and 12 acknowledged that the U.S. economy appears to be slowing down, with “inflation pressures easing,” but still recommended a wait-and-see approach before committing to a rate cut.
They recognized the need for more favorable data to increase confidence that inflation is sustainably moving towards 2%. The meeting minutes highlighted that the softness in the May Consumer Price Index was seen as part of “a series of developments in products and labor markets” supporting the view of decreasing inflation.
Nevertheless, participants emphasized that cutting rates at this point is inappropriate. They believed that although there are signs of slowing growth and decreasing price pressures in the economy, the magnitude of changes so far does not warrant a rate cut.
The meeting minutes reflected diverse opinions among the 19 policymakers in attendance. Some even indicated a preference for raising rates when necessary, some stressed the need for patience, while others mentioned that further weakening demand might lead to a significant rise in the unemployment rate. “Several participants noted that if inflation continues to remain at a higher level or increases further, it may be necessary to raise the target range for the federal funds rate,” the minutes stated. “Some participants suggested that monetary policy should be prepared to address unexpected economic softness at any time.”
The Fed’s target is to lower the annual inflation rate to 2%. Since early 2021, the inflation rate in the United States has been consistently above this level. Officials at the meeting noted recent improvements in data but expressed the need for more evidence to support the continuation of this trend.
During the June Fed meeting, policymakers also provided the latest economic forecasts for the coming years and the current status of monetary policy. The dot plot released after the meeting indicated the possibility of a rate cut this year.
In March, over half of Fed officials expected three rate cuts this year, but after a rebound in inflation data, they revised down their expectations for the number of cuts.
The dot plot showed that more officials anticipate four rate cuts in 2025, with rates slightly above 4%, which is slightly higher than the previous dot plot released after the previous meeting.
Several officials, including Fed Chair Jerome Powell, stated that encouraging inflation data would provide confidence for lowering interest rates.
Powell mentioned on Tuesday (July 2) that recent data suggests inflation is back on a downward trajectory, but he also stressed that policymakers need more evidence before initiating rate cuts.
Despite the consistent growth in job opportunities in the United States, the unemployment rate has slightly increased in recent months. Mary Daly, President of the Federal Reserve Bank of San Francisco, warned last week that the labor market is approaching a turning point, and further slowdown could lead to higher unemployment rates.
“Some participants particularly emphasized that with market normalization, further weakening in demand may now produce a bigger unemployment response than in recent periods,” the meeting minutes stated.
The records also showed officials still debating the extent to which Fed policy suppresses the economy.
The next Federal Reserve meeting is scheduled for July 30-31, where policymakers are expected to decide on keeping the benchmark interest rate unchanged.
(Note: This article references reports from Reuters, CNBC, and Bloomberg.)