The U.S. Federal Reserve building, in Washington, on July 31, 2013. The minutes of the Fed’s June 11-12 meeting showed that the policy makers saw several factors that could further ease inflation in the coming months.Jonathan Ernst/Reuters
U.S. Federal Reserve officials at their most recent meeting welcomed recent signs that inflation is slowing and highlighted data suggesting that the job market and the broader economy could be cooling.
Both trends, if they continued, could lead the Fed to cut its benchmark interest rate in the coming months from its 23-year peak of 5.3 per cent.
The minutes of the Fed’s June 11-12 meeting, released Wednesday, showed that the policy makers saw several factors that could further ease inflation in the coming months. These factors included the slower growth of wages, which reduces pressure on companies to raise prices to cover their labour costs.
The policy makers also pointed to several cases of retail chains and other businesses lowering prices and offering discounts, a sign that customers are increasingly resisting higher prices.
Yet the officials also said more evidence was needed to demonstrate that inflation was returning sustainably to the Fed’s 2 per cent target. They signalled that they were in no rush to reduce borrowing costs.
The minutes of the Fed’s meetings sometimes provide key details behind the policy makers’ thinking, especially about how their views on interest rates might be evolving. The financial markets are eagerly awaiting more clarity about the likely timetable for the Fed to begin cutting its benchmark rate. Rate cuts by the Fed would likely lead, over time, to lower borrowing costs for mortgages, auto loans and credit cards as well as business borrowing, and could also boost stock prices.
In a noticeable shift from previous minutes, the officials cited concerns that a further cooling of the job market would likely lead to layoffs. So far, slowing demand for workers has mostly appeared in the form of fewer job postings. Their stated concern about a possible increase in layoffs suggests that the Fed needs to more fully consider both its policy goals: Stable prices and full employment. That is a shift from the previous two years, when the Fed was focused solely on curbing inflation, which reached a four-decade high in 2022 of 9.1 per cent.
“The vast majority of participants assessed that growth in economic activity appeared to be gradually cooling, and most participants remarked that they viewed” the central bank’s benchmark rate as high enough to slow growth and inflation.
After last month’s meeting, Fed officials issued a statement saying that inflation had resumed declining toward their 2 per cent target. But they also scaled back their expectations for rate cuts this year, from three cuts to just one.
At a news conference, though, Chair Jerome Powell downplayed the forecast for a single cut and said either one or two cuts were equally plausible. Four of the 19 policy makers said they envisioned no rate cuts at all this year. The remaining 15 officials were nearly evenly split between one and two cuts.
On Tuesday, financial markets drew encouragement from remarks Mr. Powell made during a monetary policy conference in Portugal. Mr. Powell said the Fed had made “quite a bit of progress” toward bringing inflation back to 2 per cent.
Consumer price increases were persistently high in the first three months of the year, he noted, but in April and particularly May, inflation resumed the steady decline that had begun in the second half of 2023.
In the latest Fed minutes, many of the officials also noted that lower- and moderate-income households are “encountering increasing strains as they attempted to meet higher living costs.”
“Such strains,” the minutes said, “which were evident in rising credit card utilization and delinquency rates as well as motor vehicle loan delinquencies, were a significant concern.”