No Help For the USD As FOMC Minutes Support FED Rate Cut
The minutes from last month’s meeting were released yesterday, but the spotlight is likely to shift to Jerome Powell’s upcoming speech at the Jackson Hole Economic Symposium on Friday. At last month’s meeting, the FED kept rates on hold at 5.50%, but the accompanying statement hinted at a potential rate reduction in September, which got the market excited, when it was in the middle of a rout.
In June the FED was “highly attentive” to inflation risks; now, it acknowledges risks on both sides of its mandate. Comments in the statement indicated that there has been “some further progress” toward achieving its inflation target, a slight improvement from the “modest” progress previously. Additionally, they now believe that the risks to meeting its inflation and employment goals are moving into better balance, compared to its earlier assessment of only moving “toward” this balance.
Yesterday’s negative revisions of -818K to the NFP numbers, would argue otherwise regarding employment, but that was skewed by the unregistered migrants, which the NFP does take into account. Anyway, minutes further clarified that the FED is heading toward a rate cut next month.
FOM Minutes for the July 31st Meeting
- Vast majority felt it would likely be appropriate to cut rates if data continued to align with expectations.
- Incoming data was viewed as boosting confidence that inflation was moving towards the 2% target.
- “Several” participants noted that recent inflation progress and the rise in unemployment provided a reasonable case for a 25 basis point rate cut at the meeting, or they could have supported such a decision.
- “Almost all” participants agreed that while recent inflation data was encouraging, more information was needed to be confident that inflation was sustainably moving towards the 2% target before lowering the federal funds rate.
- A majority observed that risks to the employment goal had increased, and many noted that risks to the inflation goal had decreased.
- Many participants emphasized that delaying or minimizing policy restraint could risk excessively weakening economic activity or employment.
- Participants acknowledged solid growth in economic activity, further progress on inflation, and eased labor market conditions.
- The recent broad-based progress on disinflation across major core inflation subcomponents was noted.
- June’s price inflation for housing services showed a significant slowdown, which participants had been expecting.
- Some participants highlighted that recent data supported reports from business contacts indicating that firms’ pricing power was weakening as consumers became more price-sensitive.
After the release of the FOMC Minutes, the dollar has dipped approximately 15 basis points overall, as the report’s comments suggest a strong consensus on rate cuts. While the minutes didn’t contain any major surprises, they do indicate that the Fed is likely on track to reduce interest rates in September. Market participants are now looking to Jerome Powell’s speech on Friday for further signals on the magnitude and pace of the expected rate cuts.
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