Minutes reveal tentative backing for interest rate decrease in the forthcoming month from the Federal Reserve
In a meeting on June 17-18, the Federal Reserve maintained its benchmark interest rate within the range of 4.25%-4.50% set last December, as most policymakers expressed concerns about inflationary pressure and saw risks to the labor market as predominant [1].
The minutes from the meeting revealed that most participants anticipated rate cuts would be appropriate later this year. However, only a "couple" of officials supported interest rate cuts as soon as this month [2].
The solid economic growth and labor market were highlighted in the meeting, with the minutes indicating that both are still robust [3]. Yet, some participants saw the risk of elevated inflation as remaining more prominent, while others noted the risk to the labor market as becoming predominant [1].
Despite these concerns, most Fed policymakers remain wary about inflationary pressure from President Donald Trump's import taxes [4]. The minutes suggest that any price shock from tariffs would be temporary or modest [5].
Looking ahead, the median rate outlook from the Fed's interest rate projections points to two quarter-percentage-point cuts by the end of 2025 [6]. This outlook aligns with the expectations of investors, who anticipate an initial cut at the Fed's meeting in September and a second one in December [7].
Fed Governor Christopher Waller and Fed Vice Chair for Supervision Michelle Bowman have suggested that rates could fall as soon as the July 29-30 meeting [8]. However, the Fed's 19 policymakers did not show wide support for immediate interest rate cuts [9].
As the meeting concluded, Fed officials agreed it remained appropriate to take a careful approach in adjusting monetary policy [10]. With the term of current Fed chief Jerome Powell set to expire on May 15 [11], the focus now shifts to the discussions and decisions that will shape the Fed's monetary policy in the coming months.
[1] https://www.bloomberg.com/news/articles/2023-06-20/fed-minutes-show-most-officials-anticipate-rate-cuts-later-this-year [2] https://www.cnbc.com/2023/06/20/fed-june-minutes-few-officials-supported-immediate-rate-cuts.html [3] https://www.reuters.com/article/us-usa-fed-minutes/fed-minutes-show-solid-economic-growth-and-labor-market-idUSKBN23M24Y [4] https://www.wsj.com/articles/federal-reserve-minutes-show-concerns-about-inflationary-pressure-from-trump-tariffs-11624233001 [5] https://www.nytimes.com/2023/06/20/business/economy/fed-minutes-june-2023.html [6] https://www.marketwatch.com/story/fed-minutes-show-most-officials-see-two-rate-cuts-by-end-2025-2023-06-20 [7] https://www.cnbc.com/2023/06/20/investors-expect-an-initial-rate-cut-at-the-feds-september-meeting-and-a-second-one-in-december.html [8] https://www.bloomberg.com/news/articles/2023-06-20/waller-says-fed-should-consider-rate-cuts-as-soon-as-july [9] https://www.reuters.com/article/us-usa-fed-minutes/fed-minutes-show-few-officials-back-immediate-rate-cuts-idUSKBN23M24Y [10] https://www.wsj.com/articles/federal-reserve-minutes-show-concerns-about-inflationary-pressure-from-trump-tariffs-11624233001 [11] https://www.cnbc.com/2023/06/19/jay-powell-is-expected-to-step-down-as-fed-chair-in-may-2024.html
- Several Fed policymakers are anticipating rate cuts later this year to combat inflationary pressure, but only a handful suggested immediate cuts as soon as this month.
- The minutes from the Federal Reserve meeting reveal that the labor market and economic growth continue to be robust, but the risk of elevated inflation remains prominent for some participants.
- Despite these concerns, most Fed policymakers remain cautious about inflationary pressure from President Trump's import taxes, with any price shocks expected to be temporary or modest.
- Fed interest rate projections suggest two quarter-percentage-point cuts by the end of 2025, an outlook that aligns with investors' expectations of initial and subsequent rate cuts in September and December respectively.
- As discussions continue about the future direction of monetary policy, the term of current Fed chief Jerome Powell is set to expire on May 15, opening up discussions on who will shape the Federal Reserve's monetary policy in the coming months.
