“Most” Federal Reserve policymakers have signaled that it might be time to start cutting interest rates next month if inflation continues its recent upward trend.
The Federal Reserve’s July meeting record said on Wednesday: “Most” Federal Reserve felt that if the data continues to develop as expected it might be appropriate to ease policy at the next meeting.
However, the decision to keep interest rates at the current level for over a year has shifted monetary policy towards a more restrictive stance as inflation continues to slow.
In the meeting records, “a small number of participants” supported this view and noted that “the ongoing deflationary conditions, without any changes to the nominal target range for the policy rate, would in itself lead to a tightening of monetary policy”.
Based on the Fed’s language in the record, without specifying names or the exact number of policymakers who held this record, “a small number” could refer to a relatively small figure.
However, the meeting record indicates that policymakers are confident about the trajectory of inflation and are prepared to ease policy if the data continues to meet expectations.
This reflects two aspects. First, inflation indicators show that price pressures have substantially eased. Second, some members are concerned about the labor market and the challenges that households are facing in the current situation.
However, recent economic data, including a series of more convincing inflation data showing that deflation is underway, have led members to be more confident that inflation is on track to reach the 2% target.
The Fed’s meeting records indicate: “Almost all participants observed that the factors that had contributed to recent disinflation would likely continue to put downward pressure on inflation in coming months.”
A data-driven approach may still be a priority for the Fed even as it moves towards cutting interest rates. Most Fed members “emphasized” the need to outline that the Fed’s policy decisions will be based on the “conditional development of the economy rather than following a predetermined path”.
