EconoFACTS

July 03, 2024 | 15:31

FOMC Minutes (June 11-12) — Data Dependent Indeed

Economist

Deputy Chief Economist and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

Michael Gregory , CFA

Deputy Chief Economist and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

At the June 11-12 FOMC meeting, policymakers shifted their inflation assessment from there being a “lack of” further progress to there being “modest” further progress towards the 2% target. The Minutes showed that this shift reflected the slower April readings for the core and trimmed mean PCE price indices along with the ‘just released’ CPI for May (with its terrific results). The CPI’s acknowledgement, along with Chair Powell’s presser comment about “most” participants not factoring the latest CPI into their projections, suggests the ‘dot plot’ and median forecast would likely have indicated two rate cuts if they had factored it in (instead of just one).

Also interesting in the Minutes…

“Many participants” noted the financial strains being encountered by “lower- and moderate-income households” as they grapple with high prices and depleted excess savings. “These participants noted that such strains, which were evident in rising credit card utilization and delinquency rates as well as motor vehicle loan delinquencies, were a significant concern.” Indeed, this was considered to be an increasing downside risk to economic activity that was partly countering the lingering upside risks to inflation.

“Several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised.” (For the record, 'several' is less than 'many'.)

The risks to achieving the Fed’s employment and inflation goals are moving “toward better balance” as the employment risks creep up and the inflation risks fade further.

Bottom line: The Fed continues to follow a very data dependent policy path. And if the data continue to cooperate (emphasizing slow economic growth and ebbing inflation pressure), a September start to rate cuts is still well within the cards.