FOMC minutes indicate the Fed remains on course for a rate cut in September

The Federal Reserve is 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 kept its benchmark rate unchanged at 5.25%-5.50%, the minutes highlight a growing consensus among policymakers that easing monetary policy at the next meeting could be appropriate if economic data stays on track.

The minutes show that most FOMC members view a September rate cut as probable, reflecting concerns about the restrictive nature of current policy. Financial markets have already priced in this expectation, with some analysts forecasting up to a full percentage point reduction in rates by the end of 2024.

While all officials agreed to hold rates steady in July, opinions varied on future actions. Some argued that existing rates are already sufficiently restrictive and that further tightening could hinder economic activity, especially with inflationary pressures easing. However, others cautioned against easing too soon, fearing it could reignite inflation.

Economists see the minutes as confirming a September rate cut, with attention now shifting to the pace and extent of future cuts. The likely path involves three 0.25% reductions by year-end, although a more aggressive 0.5% cut could be considered if the labor market weakens further, as indicated by July’s disappointing job growth.

The minutes also revealed that some officials had considered a 25-basis-point cut in July due to progress on inflation and rising unemployment. However, concerns about rekindling inflation led to the decision to wait. The focus now is on how the Fed will balance the need to support economic growth while avoiding an overly rapid easing that could reverse inflation progress.

The Fed faces a delicate challenge: supporting an economy that is slowing, as recent labor data suggests, without prematurely loosening policy and risking an inflationary setback. The September meeting is expected to kick off a policy easing cycle, with the pace and scope of rate cuts likely to be closely watched by markets and the Fed in the coming months.