The Federal Reserve’s Federal Open Market Committee in the United States voted unanimously to hold the federal funds rate in the range of 5.25% to 5.50% at the July 31 meeting, the highest level since 2001. Yet several participants expressed openness to cutting rates already at that gathering. They noted that the recent progress in inflation and the rise in unemployment had provided a plausible argument to trim the target range by 25 basis points at that meeting or to support such a decision in principle. This summary appears in the minutes of the meeting, released by the central bank on Wednesday.
The message reinforces and adds to market expectations that the Fed will cut rates on September 18 for the first time since the pandemic began in March 2020, following a period of unusually rapid and sizable increases in the funds rate (a 5.25 percentage point rise from March 2022 to July 2023). The vast majority of policymakers noted that if incoming data continued roughly as anticipated, it would likely be appropriate to ease policy at the next meeting, the minutes confirm.
Powell, in remarks after the last policy meeting, already signaled that the economy is approaching the point where a rate cut would be appropriate and suggested that such a move could be on the table as soon as the September meeting. Fed participants observed that job growth was moderating and the unemployment rate remained low but was edging higher. They also noted that inflation remained above the 2 percent goal on a midterm basis but had cooled, with recent data indicating further progress toward the target.
Growing Confidence
The monetary authority chose to keep rates unchanged because almost all policymakers felt more information was needed about how inflation would evolve to gain greater confidence in its future path. At the same time, a large majority pointed toward a rate decrease in September if no negative surprises emerged. However, this was not a commitment, and officials stressed they would continue to act based on all incoming data.
In any case, the risks perceived by the Fed today make a rate cut more probable than keeping rates steady. The majority of policymakers noted that labor market risks had increased since the June meeting, while many indicated that the risks of failing to reach the inflation goal had diminished.
Many members emphasized that easing monetary policy too late or too gradually could unduly weaken the economy and job prospects, while only a few warned that moving too quickly or too aggressively could rekindle inflation.