Fed minutes: Most officials favored a rate cut in September if inflation continued to cool

WASHINGTON — Most Federal Reserve officials agreed last month that they would likely cut key interest rates at their next meeting in September as long as inflation continued to cool.

The minutes of the Fed’s July 30-31 meeting, released Wednesday, said the “vast majority” of policymakers “noted that if data continued to come in roughly as expected, it would likely be appropriate to ease policy at the next meeting.”

In July, policymakers kept their benchmark rate at 5.3%, the highest level in nearly a quarter century. It has been there for more than a year.

Wall Street traders had already said it was certain that the Fed would announce its first rate cut in four years at its mid-September meeting. futures pricesA lower Fed benchmark rate would ultimately lead to lower rates on auto loans, mortgages and other forms of consumer borrowing and could also boost stock prices.

The minutes of Fed meetings sometimes reveal important details behind policymakers’ thinking, particularly about how their views on interest rates might evolve. Further guidance on the Fed’s next steps is expected when Chairman Jerome Powell delivers long-awaited speech Friday morning at the annual central bankers symposium in Jackson Hole, Wyoming.

A rate cut in September, less than two months before the presidential election, could create some unwelcome political pressure for the Fed, which wants to get caught up in election-year politics. Former President Donald Trump has argued that the Fed should not cut rates so close to the election. But Powell has repeatedly stressed that the central bank would make its rate decisions based purely on economic data, without regard to the political calendar.

Several Democratic senators, led by Elizabeth Warren of Massachusetts, had called on Powell to cut rates at the Fed’s July meeting, arguing that delaying a cut when inflation rates warranted it would be a political act in itself.

Inflation, by the Fed’s preferred measure, has fallen from a peak of 7.1% in 2022 to just 2.5% now. In recent interviews with The Associated Press, two Fed officials noted that as inflation declines, inflation-adjusted interest rates — which businesses watch closely — are rising. That trend supports a rate cut in the near term, Raphael said. bosticchairman of the Fed’s Atlanta and Austin offices goolsbeechairman of the Chicago branch.

“We may have to adjust our policy sooner than I had anticipated,” Bostic said.

Most analysts expect Powell’s speech on Friday to signal the Fed’s confidence that inflation will return to its 2% target and perhaps even hint at how many rate cuts might come this year. Speaking at a press conference after last month’s Fed meeting, Powell had suggested a wide range of policy steps were possible, from “zero cuts to multiple cuts” by year’s end.

Two days after the Fed met late last month, the government released a jobs report for july which showed hiring was much weaker than expected and the unemployment rate rose for the fourth straight month, to a still-low 4.3%. The sluggish hiring data prompted a sharp two-day decline in the stock marketwith traders suddenly fearing that a recession was looming.

But last week the government reported that sales in stores and restaurants rose at a healthy pace in July, evidence that consumers were still willing to spend and help boost the economy. And a separate report showed that the number of people filing for unemployment benefits — a proxy for layoffs — slipped in the past week, a sign that most companies are still holding on to their employees.