Fed On Course For September Rate Cut As Meeting Minutes Show Strong Support

The Federal Reserve appears poised to introduce an interest rate cut in September, according to the minutes from the central bank's July 30-31 meeting, which were released on Wednesday.

A "vast majority" of Fed officials indicated that a reduction in borrowing costs is likely, with some policymakers even expressing willingness to cut rates during the July meeting, according to Reuters.

The Federal Open Market Committee (FOMC) decided to keep the benchmark interest rate steady in the 5.25%-5.50% range during the July meeting.

However, they signaled that a rate cut could be on the table at the upcoming September 17-18 meeting, especially if economic data continues to align with expectations.

Financial markets have been anticipating the potential shift in policy, with some analysts forecasting up to a full percentage point reduction in rates by the end of the year.

The minutes revealed that most Fed officials believe that easing policy at the next meeting would be appropriate if economic conditions remain stable.

Many officials described the current interest rate levels as restrictive, with some arguing that maintaining these rates could further slow economic activity amid cooling inflation pressures.

Although the decision to hold rates steady in July was unanimous, the minutes highlighted that "several" policymakers saw merit in a quarter-percentage-point cut at that time because of progress in reducing inflation and a rising unemployment rate as key factors.

But despite the broad support for a rate cut, a minority of officials expressed concerns that easing too soon could reignite inflation.

Analysts are now speculating on the extent of the cuts that may follow, with some suggesting that Fed Chair Jerome Powell could lead the committee towards a series of three 25-basis-point cuts through the end of the year.

Others believe a more aggressive half-percentage-point cut could be considered if the job market shows further signs of weakness.

The case for rate cuts is bolstered by the Fed's concerns about the labor market, with the latest data indicating a rise in the unemployment rate to 4.3%, up from a low of 3.4% early last year.

The minutes also referenced recent revisions from the Labor Department, which showed 818,000 fewer payroll jobs than previously reported in March, raising questions about the strength of the job market.

The Fed officials acknowledged that the labor market has largely returned to pre-pandemic conditions, describing it as "strong but not overheated."

However, they also noted that the risks to employment have increased, while the risks associated with inflation have diminished.

Powell is expected to provide further insights into the Fed's outlook during his speech at the Kansas City Fed's annual research conference in Jackson Hole, Wyoming, on Friday.