FOMC Minutes ‘Less Shocking Than Feared’: Evercore By Investing.com

Minutes from the FOMC’s July meeting revealed little new information and were a little out of date given the developments since then.

Still, the data was “a little less stale than we feared it might be,” Evercore analysts noted Wednesday, “and confirms that the debate was already firmly in favor of cuts.”

The “vast majority” of Fed officials indicated that if the data were in line with expectations, a rate cut in September would be appropriate, with “several” suggesting they would have supported a cut in July, the summary of the minutes said.

The tone on inflation appeared considerably more favorable, with most policymakers viewing risks as becoming more balanced. Inflation risks were perceived as declining while employment risks were rising, although they did not fully offset or favor employment concerns.

Meanwhile, a softening of the labor market has been widely discussed, potentially highlighted by the minutes’ staff.

“Some” officials highlighted “the risk that a further gradual easing of labor market conditions could turn into a more serious deterioration”, while “many” noted that acting too late or too cautiously in reducing restraint could put activity and employment are at risk, according to the summary.

“Employees no longer saw unemployment falling and expected it to rise slightly before stabilizing,” Evercore analysts commented.

“We believe that this staffing outlook, which is still difficult to reconcile with the declining use of resources under restrictive policy, must imply declining participation and may reduce the implications of weaker labor demand.”

Fed officials have already considered the possibility that wage growth may be overstated and insufficient to prevent a rise in unemployment if labor force participation remains stable. There was no talk of a 50 basis point move, with Powell shaking his head when asked about it during the news conference.

However, this lack of discussion is not surprising and is not seen as a major signal, analysts note.

The overall tone seems slightly dovish, suggesting that it may not be too difficult for Chairman Powell to guide the Committee to a baseline of three consecutive 25 basis point cuts by the end of 2024. A 50 basis point cut core could be on the table, but only if upcoming labor data “aligns with and validates the more pronounced weakening in the July employment report,” they added.