FOMC Minutes: Risk to inflation goal had eased

According to the Minutes from the two-day session held on July 30-31, the vast majority of participants indicated it would likely be appropriate to ease policy at the next meeting if the data continued to align with expectations.

Jerome Powell admits officials discussed a rate cut at July meeting

The Fed maintained its monetary policy settings for the eighth consecutive meeting in July, as widely expected. In its policy statement, the US central bank said that it is attentive to risks on both sides of its dual mandate, a change from the June statement, in which it said it was ‘highly attentive’ to inflation risks.

Although the Fed repeated that it does not expect it will be appropriate to lower rates until it has gained greater confidence that inflation is moving sustainably toward 2%, Fed Chair Jerome Powell’s remarks in the post-meeting press conference all but confirmed a rate cut in September.

“We are getting closer to being at the point to reduce rates,” Powell said and added that a rate cut could be on the table in September. Furthermore, he noted that there was a “real discussion” about the case for reducing rates at the July meeting.

Two days after the Fed announced monetary policy decisions, the monthly report published by the Bureau of Labor Statistics (BLS) showed a further cooling of the labor market in July. Nonfarm Payrolls (NFP) in the US rose by 114,000 in July and the 206,000 increase recorded in June got revised lower to 179,000. Additionally, the Unemployment Rate rose to 4.3% from 4.1%.

Powell’s dovish remarks and the soft jobs report allowed markets to fully price in a 25 bps rate cut in September. According to the CME FedWatch Tool the probability of a 50 bps rate reduction nearly reached 50% earlier in August. With upbeat July Retail Sales and weekly Jobless Claims data easing fears over an economic downturn in the US, the odds of a large rate cut retreated toward 25%.