Fed officials agreed September interest rate cut looks likely
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Fed chair Jerome Powell speaks at a news conference last month in Washington, D.C. Photo: Andrew Harnik/Getty Images
The "vast majority" of Federal Reserve officials said the central bank would likely cut interest rates in September—while several saw a case to slash rates last month, according to minutes from the policy meeting in late July released on Wednesday.
Why it matters: It's the clearest indication yet the Fed is on track to cut interest rates next month for the first time since 2020 as worries about the health of the economy mount.
What they're saying: The lion's share of Fed officials "observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting," the minutes from the policy meeting held July 30-31 read.
The intrigue: At that meeting, the Fed unanimously voted to hold rates at a range between 5.25% to 5.5%, the highest level in two decades.
- But "several" officials said they saw good reason to cut interest rates by a quarter-percentage point last month—or they could have supported such a decision, the minutes show.
- Those officials cited continued progress on inflation falling back to 2% and the jump in the unemployment rate. Still, as has been the case in recent months, there was no official dissent against the decision to keep rates steady.
What we're watching: "Almost all" officials said that the factors that have pushed inflation down "would likely continue" in the coming months. That included the slowing economy and consumer pushback on high prices.
- Some officials said there was rising risk that the continued cooldown in the labor market "could transition to a more serious deterioration," the minutes said.
- A couple officials brought up the "cost and challenges" of addressing labor market weakening "once it is fully underway."
- The minutes show that several policymakers said cutting rates too soon or too much could risk reversing progress on inflation.
The bottom line: The minutes confirm what financial markets have long been expecting — that the cooldown in inflation and signs of labor market shakiness would nudge the Fed to cut rates when officials next meet in September.
- The remaining question is whether officials will reduce rates by a quarter-percentage point or a larger half-percentage point cut.
What's next: Federal Reserve chair Jerome Powell will speak on the economic outlook on Friday at the central bank's annual, high-profile conference in Jackson Hole, Wy.
