US Fed officials at last meeting saw price pressures in decline, minutes show

WASHINGTON – Federal Reserve officials at their last meeting acknowledged that the US economy appeared to be slowing and “price pressures were diminishing”, but still counselled a wait-and-see approach before committing to interest rate cuts, according to minutes of the two-day session held on June 11 and 12.

The minutes, which were released on July 3, noted in particular a weak May reading in the consumer price index (CPI) as one among “a number of developments in the product and labour markets” that supported a view that inflation was in decline.

Still, “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 towards” the 2 per cent target.

With only modest improvement so far, that move was not warranted despite signs the economy was heading towards slower growth and lowered price pressures, the minutes said.

“The vast majority of participants assessed that growth in economic activity appeared to be gradually cooling, and most participants remarked that they viewed the current policy stance as restrictive”, and therefore likely to further curb the economy and inflation.

In voting to keep the policy rate steady in the 5.25 per cent to 5.50 per cent range where it has now been for a year, “participants noted that progress in reducing inflation had been slower this year than they had expected last December”, the minutes said, with “some participants” emphasising the need for patience before cutting rates, and “several” citing the possible need to raise rates further if inflation resurged.

Data released on June 12 showed that the CPI had not risen at all in May on a month-to-month basis, an encouraging development that came late in the US central bank’s policy deliberations. Some market players had been surprised the more favourable data was not reflected in the Fed forecasts released at June’s meeting.

Speaking on July 2 at a European Central Bank conference in Portugal, Fed chairman Jerome Powell described

a cautious approach to setting monetary policy

when it comes to divining the path of price pressures.

“We just want to understand that the levels that we’re seeing are a true reading on what is actually happening with underlying inflation,” Mr Powell said.

“We want to be more confident that inflation is moving sustainably down towards 2 per cent... before we start... loosening policy.”

Along with holding rates steady, policymakers at the June meeting delayed the expected start of rate cuts, with new projections showing Fed officials at the median anticipated only one quarter-percentage-point cut in 2024 versus the three expected as at the March 19 and 20 meeting.

The Fed will hold its next policy meeting on July 30 and 31, when it is expected to leave its benchmark interest rate unchanged.

Policymakers by then will get an update on the labour market with the release on July 5 of the jobs report for June, the release of the CPI for June on July 11 and an initial estimate of second-quarter economic growth on July 25. REUTERS