Fed minutes signal September rate cut

A September rate cut seems well in place after a few minutes of Last meeting of the US Federal Reservereleased last night, showed that many rate-setters had considered a cut in July.

Several members at the Fed’s last meeting thought there was a “plausible case” for cutting rates by 25 basis points, given the progress on inflation and rising unemployment.

“The vast majority noted that if the data continued to come in as expected, it would probably be appropriate to ease the policy at the next meeting,” the minutes said.

At the July meeting, inflation was three percent, while unemployment was 4.1 percent. Since then, inflation has fallen to 2.9 percent, while unemployment has risen 0.2 percentage points to 4.3 percent.

“The latest data will have encouraged the doves and reassured the hawks,” said Ian Shepherdson, president and chief economist at Pantheon Macroeconomics.

“We expect Chairman Powell (Friday) to actually confirm the September easing,” he added. Powell will speak tomorrow at the annual symposium in Jackson Hole.

Stephen Brown, deputy chief economist for North America at Capital Economics, said the minutes “confirm a September rate cut”.

For markets, the question is not whether the Federal Reserve is cutting rates, but whether it is headed for a 25 basis point cut or a cut of more than 50 basis points. According to CME’s Fedwatch, there is about a 34% chance of a 50 basis point cut.

The minutes emphasized that members would make decisions based on “the totality of the data received” rather than specific data points.

Investors also had to look at revisions to official labor market figures released yesterday, which showed job growth was slightly weaker than expected.

The figures showed that monthly wage gains in the year to March averaged 178,000, down from 246,000, meaning more than 800,000 fewer jobs were created.

James Knightley, chief international economist at ING, said the revisions add to doubts about the quality of data from March as well. “Momentum is being lost from an even weaker position than originally thought,” he said.

The next jobs numbers will be released on September 6 and will be closely watched before the Fed announces its rate decision on September 18.

After AM city

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