The Federal Reserve (Fed) moves towards an expected and practically certain rate cut in September, after the minutes of the last meeting of the Federal Open Market Committee (FOMC), where “the vast majority” of participants said that if economic data are trending in the direction of recent months “it will probably be appropriate to ease policy at the next meeting.”
The rates in USA are at their highest level since 2001, in the range between 5.25 and 5.5%, a range from which they have not moved since July 2023, with the objective of the central bank of that country to consolidate a decline inflation.
“Almost all participants felt that the data received had increased their confidence that inflation was moving closer to the Committee’s objective,” according to the minutes of the Fed’s July meeting, released Wednesday.
The Fed Minutes
During the July meeting, Fed officials thought that “if the data continued to come in as expected, it would probably be appropriate to make flexible policy at the next meeting.”
According to the minutes, “many” considered the rate stance to be restrictive and “a few participants” argued that, amid an ongoing cooling of inflationary pressures, no change in rates would mean that monetary policy would increase the drag on the economic activity.
While all agreed to keep interest rates level, the minutes revealed that “several” said progress in reducing inflation amid a rise in the unemployment “had provided a plausible case” for a quarter-point cut in July, “or that they might have supported such a decision” if it had been on the table.
The minutes also showed that a shrinking group of policymakers feared that premature easing of monetary policy could reignite inflation.
Rate cut almost certain and discussion ahead
In this way, in view of the next meeting, which will take place between September 17 and 18, a reduction is discounted, to the point that the interest rate futures markets reflect a 100% probability.
However, the difference is in how much that cut will be, as most investors expect it to be 25 basis points, while others venture that it could reach 1000. 50 basis points. “The Fed minutes removed all doubts about a rate cut in September,” he said. Jamie Cox, managing partner of Harris Financial Group.
In fact, a future discussion is opening up on how many movements there will be in the remainder of 2024 and some investors anticipate that they could be up to a full percentage point by the end of this year.
“It may not be too difficult for the Jerome Powell “cause the Committee to now adopt a baseline of three consecutive 25 basis point cuts through the end of the year,” analysts at Reuters told Evercore ISI, while they considered that there is a “reasonably low bar” for half-percentage point cuts, but that would probably require a “more pronounced weakening” in the labor market in relation to the weakness observed in the hiring data in July.
Source: Ambito
