Source: Financial Times
Minutes from the June meeting showed some officials were concerned about the impact of keeping interest rates at higher levels on the labor market.
Updated on July 4, 2024 08:32 Financial Times Martin Muir, Kate Duguid
Federal Reserve officials believe U.S. inflation is cooling but still need “greater confidence” before agreeing to cut interest rates from a 23-year high, minutes from the central bank’s most recent meeting showed.
"Participants said that a range of developments in product and labor markets supported their judgment that price pressures were easing," said the minutes of the June meeting released on Wednesday.
Some rate setters also noted that retailers are cutting prices in the face of weakening consumer demand.
But the minutes showed that Federal Open Market Committee (FOMC) members also believed that they should keep interest rates at their current level of 5.25% to 5.5% until "more information emerges that provides them with greater confidence" that inflation is moving "sustainably" toward the Fed's 2% target.
Concerns have persisted for months that price pressures have not eased as quickly as Fed officials had hoped, making them reluctant to cut borrowing costs too quickly.
The Fed raised interest rates sharply two years ago to quell inflation that hit multi-decade highs in 2022. Inflation fell rapidly last year, and the Fed's preferred inflation measure fell again to 2.6% in May this year. But it is still above its target.
However, the minutes also showed that some policymakers were concerned that unemployment could rise too quickly if interest rates remained higher for too long.
"Several participants emphasized that as labor markets normalize, further weakening of demand could now produce a larger unemployment response than in the recent past, with the recent reduction in labor demand being reflected more through declines in job openings."
The Bureau of Labor Statistics will release a closely watched job market report on Friday. Economists surveyed by Bloomberg predict that 190,000 new jobs were added in June, which would mark a sharp slowdown from the previous month.
Officials said at their June meeting that they expected to cut borrowing costs just once this year, down from a previous forecast of three times.
Inflation and high borrowing costs have become a political issue for President Joe Biden, with polls showing voters remain unhappy with the cost of living and his handling of the economy in recent years.
Traders in the futures market are currently pricing in a 70% chance of a rate cut in September - the last policy decision before the Nov. 5 presidential election. Nearly two more cuts are expected before the end of the year. The Fed next meets on July 31.
Rate setters hinted in their statement after their last meeting that other factors, including the impact of two years of high interest rates on consumer demand, an easing in the labor market and rising supply, would help to further curb inflation.
