Minutes released on 9/7 from the US Federal Reserve (Fed) show that in last month's meeting, only a few officials believed an interest rate cut could happen as early as July. Most felt it would be more appropriate later in the year, once the price shock from import tariffs was deemed "mild or temporary".
The majority remained concerned about inflationary pressure from President Donald Trump's trade policies. There was no indication that any official supported the multi-percentage-point rate cut Trump demanded. Some even argued that further rate cuts weren't necessary at this time.
The Fed has held rates steady since the beginning of the year. Trump has repeatedly called for the central bank to aggressively cut rates immediately and has even suggested that Fed Chair Jerome Powell should resign.
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Fed Chair Jerome Powell during a press conference on 18/6. Photo: Reuters |
Fed Chair Jerome Powell during a press conference on 18/6. Photo: Reuters
Some policymakers suggested that the current interest rate (4.25-4.50%) is already very close to neutral, meaning it neither stimulates nor restrains the economy. Earlier forecasts indicated that even the most dovish officials only expected a cut of less than 1 percentage point this year and no more than 1% next year.
Following the release of the minutes, traders further lowered their already low expectations of a Fed rate cut at the 29-30/7 meeting. Investors now anticipate the central bank will cut a total of 50 basis points (0.5%) this year, in line with the Fed's plan.
"Members generally agreed that economic growth and the labor market remain strong. Monetary policy is currently only slightly restrictive, so the Fed will patiently wait for clearer signals on inflation and the economic outlook," the minutes stated.
However, Fed officials were divided on the state of demand in the economy. Some affirmed that consumer spending remains robust, while others saw signs of weakening. Some pointed out that low-income families are switching to cheaper goods and will be heavily impacted by the price increases resulting from import tariffs.
Most officials expressed caution in adjusting policy given the many uncertainties, particularly the level of tariffs Trump will actually impose and how businesses and consumers will react. "Officials agreed that adjustments to monetary policy still need to be approached cautiously," the minutes said.
Interest rate forecasts following the June meeting suggest the Fed could cut rates twice in the second half of this year, by 0.25 percentage points each time. Investors expect the first cut to occur in September and the second in December.
Ha Thu (via Reuters)
