EconoFACTS

August 21, 2024 | 14:38

FOMC Minutes (July 30-31) — Closing in on Rate Cuts

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)

The FOMC kept policy rates unchanged on July 31 and signalled that it had moved closer to cutting them. Changes in the policy statement hinted at potential rate cuts, as did Chair Powell’s presser comments. The key change was to the statement’s risk assessment. Amid an uncertain economic outlook, it said “the Committee is attentive to the risks to both sides of its dual mandate”. This replaced the phrase about the Committee being “highly attentive to inflation risks” that had been in place since Powell’s seminal “Restoring Price Stability” speech in late March 2022. This was a powerful signal that the Fed was “getting closer to the point at which it will be appropriate to begin to dial back restriction”.

The Minutes revealed how much closer (the underlines are ours):

“Almost all participants remarked that while the incoming data regarding inflation were encouraging, additional information was needed to provide greater confidence that inflation was moving sustainably toward the Committee's 2 percent objective before it would be appropriate to lower the target range for the federal funds rate.”
However, “… several observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision.”
“The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”
“A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased.” In other words, the proverbial policy scale is already tipping towards rate cuts.

Bottom line: A rate cut on September 18 was being teed up at the end of last month. In the presser, Chair Powell said, “a rate cut could be on the table at the September meeting” if subsequently released inflation data were “good” (they were) and labour market data weakened further (they did). Market attention now turns to Powell’s Friday speech at Jackson Hole for further corroboration.