Fed Meeting Minutes: Slow Progress in Inflation Decline, Officials Still Cautious About Rate Cuts

According to the financial news app Zhitong Finance, Federal Reserve officials took a wait-and-see attitude at the June meeting. According to the latest central bank meeting minutes, policymakers pointed out that there are various possible outcomes for the U.S. economy and inflation, each of which has different implications for interest rates. The minutes stated, "Some participants emphasized that the Committee takes a data-dependent approach, where monetary policy decisions depend on the evolution of the economy rather than a preset path."

Slow Progress in Inflation Decline

The minutes mentioned that officials discussed the outlook for monetary policy and noted that progress in reducing inflation this year has been slower than expected in December last year. They emphasized that it is not considered appropriate to lower the target range for the federal funds rate without more information indicating that inflation is stabilizing towards the Committee's 2% target. The consumer price index for May was released on the morning of June 12, during the Federal Reserve officials' meeting discussions. The report showed that prices remained flat in May, with a year-on-year increase of 3.3%, which was one percentage point lower than the year-on-year growth rate in April. The Fed's annual inflation target is 2%.

Looking Ahead

During the post-meeting press conference on June 12, Federal Reserve Chairman Powell stated that the May inflation data was a step in the right direction, despite significant fluctuations expected by early 2024. However, he also noted that officials are still seeking more certainty to confirm the decline in inflation. Due to economic resilience and a stable labor market, the Fed can continue to adopt a wait-and-see approach. The minutes also mentioned, "Participants noted that recent indicators show that economic activity continues to expand at a solid pace." They expect real GDP growth this year to be lower than the strong growth in 2023, and recent economic activity data has generally aligned with expectations of a slowdown. Participants observed that this year's lower output growth rate may help in the de-inflation process, while also being consistent with a strong labor market.

Officials outlined several scenarios that may occur for the remainder of the year. Some participants indicated that they are monitoring signs of a rapid decline in economic activity or an increase in the unemployment rate, which could support an earlier policy easing. Others listed numerous reasons why inflation may remain above 2% or rise again: "Deterioration in geopolitical developments, escalating trade tensions, more persistent housing price inflation, financial conditions that may or may not become less restrictive, or U.S. fiscal policy being more expansionary than expected." The next meeting of the Federal Open Market Committee will be held on July 30-31.

Interest rate futures pricing on Wednesday showed that the likelihood of the Committee lowering the federal funds rate by a quarter point at the next meeting is less than 10%. The futures market expects a 73% probability of a rate cut at the September meeting. Federal Reserve officials stated that there is no preset path for rates in 2024, and they will observe economic, employment, and inflation data from now until then as guidance