U.S. Federal Reserve Awaits Further Evidence of Cooling Inflation: Key Insights from June Minutes

July 4, 2024 - The U.S. Federal Reserve is currently in a holding pattern, seeking more evidence of cooling inflation. The minutes from the June 12 Federal Open Market Committee (FOMC) meeting highlight a divide among officials on how long to maintain elevated interest rates.

Key Insights from the June FOMC Meeting

During the two-day meeting, officials concurred that it wouldn't be appropriate to lower borrowing costs "until additional information had emerged to give them greater confidence that inflation" is progressing towards their 2% goal. The Fed's key policy rate has remained in a target range of 5.25% to 5.5% — the highest level in over two decades — since July last year.

Inflation and Interest Rate Projections

• Interest Rate Outlook: Officials have scaled back the number of interest-rate cuts expected this year to just one, according to the median projection. Notably, four policymakers predicted no cuts for 2024, while eight forecast two cuts.
• Inflation Data: Early 2024 data indicated a stall in inflation progress, but recent figures are more promising. May saw the smallest advance in the Fed’s preferred measure of underlying inflation in six months.

Economic and Labor Market Concerns

Federal Reserve Chair Jerome Powell emphasized that while recent data suggests inflation is declining, more evidence is necessary before rate reductions can commence. The minutes also expressed growing caution about the labor market, which has shown signs of cooling. The unemployment rate has edged higher, and San Francisco Fed President Mary Daly warned of a potential inflection point where further slowing could lead to increased unemployment.

Future Policy and Economic Restraints

The minutes revealed ongoing debates among officials regarding the restrictive impact of current Fed policy. Some officials believe the longer-run equilibrium interest rate might be higher than previously assessed, implying that monetary policy might be less restrictive than it appears.

Upcoming Economic Indicators

The upcoming jobs report, expected on Friday, is projected to show employers added 190,000 jobs in June, with the unemployment rate holding steady. This would indicate a slowdown from May, when payrolls exceeded forecasts.

Conclusion

The Federal Reserve remains cautious, focusing on data-driven decisions to manage inflation and support economic stability. As new data emerges, policymakers will continue to adjust their strategies to navigate the complex economic landscape.

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