The Federal Reserve appears to be very much on track for an interest rate cut in September after a “vast majority” of officials said such an action was likely, according to the minutes of the U.S. central bank’s July 30-31 meeting. Markets are fully pricing in a September cut, which would be the first since the emergency easing in the early days of the Covid crisis.
The day after the meeting, the Labor Department reported an unexpected spike in unemployment claims, while a separate indicator showed the manufacturing sector contracted more than expected. Things got worse when the nonfarm payrolls report for July showed job creation of just 114,000 and another tick up in the unemployment rate to 4.3%.
Calls grew for the Fed to cut quickly, with some even suggesting that the central bank do an intermeeting move to head off worries that the economy was sinking fast.
However, the panic was short-lived. Subsequent data releases showed jobless claims drifting back down to normal historical levels while inflation indicators showed price pressures easing. Retail sales data also was better than expected, assuaging worries of consumer pressure.
While all Fed officials were on board with keeping rates steady in July, the minutes revealed that “several” policymakers said progress in lowering inflation amid a rise in joblessness “had provided a plausible case” for a quarter-percentage-point cut in July, “or that they could have supported such a decision” had it been on the table.
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