Fed Meeting Minutes Show Officials Still On the Sidelines With Rate Cuts
Updated July 03, 2024 2:28 pm EDT / Original July 03, 2024 2:12 pm EDT
Federal Reserve officials were in wait-and-see mode at their June meeting, minutes from the central bank’s last confab showed. Policymakers noted a range of plausible outcomes for the U.S. economy and inflation, with differing interest-rate implications for each.
“Some participants…emphasized the Committee’s data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path,” read the minutes from the Federal Open Market Committee’s June 11-12 monetary policy meeting, which were published at 2 p.m. ET on Wednesday. The FOMC held the federal-funds rate at a range of 5.25% to 5.5% at the meeting —its target since July 2023.
Officials’ collective forecast for interest rates in the Summary of Economic Projections implied only one quarter-point cut by the end of 2024—two fewer reductions than the median estimate in the quarterly SEP showed in March.
“In discussing the outlook for monetary policy, participants noted that progress in reducing inflation had been slower this year than they had expected last December,” the minutes read. “They emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee’s 2% objective.”
The May Consumer Price Index was published on the morning of June 12, in the middle of Fed officials’ discussions at the meeting. The report showed that prices were flat in May and up 3.3% from a year earlier—a tenth of a percentage point less than the year-over-year gain seen in April. The Fed has a 2% annual inflation target.
Fed Chair Jerome Powell’s message at his postmeeting press conference on June 12 was that May inflation data was a step in the right direction after a bumpy start to 2024. But, he said, officials remain on the hunt for more certainty that inflation is moving down. A resilient economy and still-solid labor market mean the Fed can afford to wait.
“Participants noted that recent indicators suggested that economic activity had continued to expand at a solid pace,” the minutes read. “Participants expected that real GDP growth this year would be below the strong pace recorded in 2023, and they remarked that recent data on economic activity were largely consistent with the anticipated slowing. Participants observed that a lower rate of output growth this year could aid the disinflation process while also being consistent with a strong labor market.”
Fed officials described several scenarios for how the rest of the year could unfold. Several participants said they were watching for signs of a faster decline in economic activity or rise in unemployment, which could argue for easing policy sooner.
Others listed numerous reasons inflation could remain stuck above 2% or pick up again: “worsening geopolitical developments, heightened trade tensions, more persistent shelter price inflation, financial conditions that might be or could become insufficiently restrictive, or U.S. fiscal policy becoming more expansionary than expected,” the minutes read.
The FOMC next meets on July 30-31. On Wednesday, interest-rate futures pricing implied a less than 10% chance that the committee will reduce the fed-funds rate by a quarter of a percentage point then. Futures were pricing in about 73% odds of a cut at the Fed’s September meeting.
Fed officials say that interest rates aren’t on a predetermined path in 2024. They’ll be watching the incoming economic, jobs, and inflation data between now and then—and letting that be their guide.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com