Fed remains on track for September rate cut – FOMC minutes

The Federal Reserve is strongly signaling a likely interest rate cut in September, as revealed in the minutes from the July 30-31 Federal Open Market Committee (FOMC) meeting.
Although the Fed maintained its benchmark interest rate in the 5.25%-5.50% range during that meeting, the minutes indicate a consensus among FOMC policymakers that easing monetary policy at the next meeting could be appropriate if economic data continues to align with expectations.

The minutes show that a majority of Fed officials see a rate cut as likely in September, reflecting growing concern about the restrictive nature of the current policy stance.
Financial markets are anticipating this move, with some analysts predicting up to a full percentage point reduction in rates by the end of 2024.

While all Fed officials agreed to keep rates steady in July, there were differences in opinion on future actions.
Some policymakers argued that the current rates are already restrictive and that not easing could further slow economic activity, especially given the ongoing cooling of inflationary pressures.
On the other hand, others were concerned that premature easing might reignite inflation.

Economists interpret the Fed minutes as removing any doubt about a September rate cut, with speculation now turning to the pace and extent of future cuts.
A likely scenario involves three consecutive 0.25% cuts by the end of the year.
However, a more aggressive 0.5% cut could be considered if the labor market deteriorates significantly, as suggested by the weaker-than-expected job growth in July.

The minutes reveal that some Fed officials were already considering a 25 basis point cut in July due to progress in lowering inflation alongside rising unemployment.
However, concerns about the risk of reigniting inflation led to a decision to hold off.
The focus is now on how the Fed will balance the need to support economic growth with the risk of inflation rebounding if policy is eased too quickly.

The Fed’s deliberations underscore the delicate balancing act it faces: supporting an economy that shows signs of slowing, as seen in the recent labor market data, while avoiding a premature easing of monetary policy that could undermine its progress on inflation.
The September meeting is poised to mark the beginning of a policy easing cycle, with the scope and pace of rate cuts likely to be a critical focus for both the Fed and financial markets in the coming months.