Fed Officials Signaled No Hurry to Cut Rates

With elevated inflation preventing Federal Reserve officials from feeling confident enough to cut interest rates, some policymakers at their meeting last month called for careful attention to signs the labor market might weaken faster than anticipated.

“A number of participants remarked that monetary policy should stand ready to respond to unexpected economic weakness,” said the minutes of the Fed’s June 11-12 meeting, which were released Wednesday with a customary three-week delay.

Officials also cataloged several economic developments—including a slowdown in wage growth, reduced pricing power by businesses and increased consumer sensitivity to price increases—in support of their expectation that inflation would continue to decline over the coming year.

Some officials said they thought higher immigration was allowing the economy to add more jobs while holding the unemployment rate steady, easing imbalances in a labor market that had appeared quite overheated two years ago. Some thought a closely monitored survey of monthly payroll growth might be overstating job gains, the minutes said.

The minutes showed officials were broadly comfortable with their wait-and-see stance on changing interest rates and highlighted a range of views about what might prompt the Fed to raise or lower rates. Together with more recent public communication by Fed officials, the minutes indicated they aren’t likely to cut rates at their meeting later this month.

Since last month’s meeting, Fed officials including Chair Jerome Powell have signaled they are broadly satisfied with how inflation has resumed a downtrend after several hotter readings at the start of the year, suggesting the door remains open to a cut in September.

The Fed raised rates at the fastest pace in 40 years in 2022 and 2023 to combat inflation that also rose to a four-decade high. They have held their benchmark rate in a range between 5.25% and 5.5% since last July.

Officials were surprised in the second half of last year by how rapidly price growth slowed despite strong spending and hiring, leading them to shift their attention away from how high to raise rates and toward how long to wait before cutting them. Inflation turned around after that, derailing expectations by investors and the Fed itself that the central bank might have been able to cut rates by now.

The whiplash from cooler and then hotter inflation has left the Fed in something of an awkward holding pattern, where policymakers are looking for either several more months of convincingly benign inflation readings or evidence of a meaningful slowdown in hiring and economic activity before lowering rates.

Economic projections released last month showed most Fed officials expect to cut interest rates once or twice this year if inflation slows and growth is solid but unspectacular. Markets are focused on whether officials at their July 30-31 meeting might lay the groundwork for a rate cut at their subsequent gathering in September.

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