July minutes highlighted labor market risk: Investing.com analysts

July’s FOMC minutes highlighted growing concerns about labor market risks and reflected a dovish stance by the committee, JPMorgan economists said on Wednesday.

Minutes from the July 30-31 meeting, held just before the release of July’s weak jobs report, showed the committee appeared more concerned about labor market vulnerabilities than the risk of a rekindling of inflation, despite admits that the current inflation has remained somewhat high.

While only “several” members considered cutting rates by 25 basis points at the last meeting, it was clear that a “large majority” were already inclined to support a rate cut at the next meeting in September. Moreover, “many” participants viewed the current policy as restrictive, JPMorgan notes, citing the minutes’ release.

“Participants struggled, as did many others, to understand how much of the increase in unemployment reported at the time of the meeting was due to increased labor supply and how this increase should be weighed against better results in measures such as the new jobless claims and layoff rates,” the bank’s economists said.

This suggests that while the committee tried to assess the impact of the increase in unemployment, they did not dismiss the magnitude of the increase.

Additionally, there was anticipation of potential downward revisions to wage numbers and “several assessed that wage gains may be less than needed to keep the unemployment rate constant with a constant labor force participation rate” , it is stated in the minutes report.

However, economists stressed that the decision to cut rates by 25 or 50 basis points at the September meeting depends heavily on the monthly employment report.

Separately, Citi economists said July’s FOMC minutes were not surprising, but were “the clearest indication yet that a rate cut is coming in September.”

“This belief will only have increased after another month of weaker CPI inflation data and weaker employment,” they added.

August employment data is expected to play a key role in determining the size of the rate cut in September. However, July’s FOMC minutes suggest many officials could be persuaded to back a 50 basis point cut in September, which remains Citi’s base case.

Following a weaker-than-expected July jobs report, further caution emerged as the preliminary benchmark revision to 2024 showed a significant downward adjustment to recent wage growth. Non-farm payrolls for March 2024 were revised down by 818,000, marking the largest adjustment since 2009.

“While the revised monthly pattern for payrolls will not be known until February next year, these data imply a downward revision of about 70,000 per month and suggest that job growth averaged 170-180,000 per month in over the year to March, rather than the previously reported average. of 242k,” JPMorgan said in a separate report.