June FOMC Minutes Released
"Greater Confidence Needed That Inflation Will Slow to 2%"
Differences Among Members on Monetary Policy Direction
"Concerns Over Faster Layoffs Due to Labor Market Cooling"
Officials of the U.S. Federal Reserve (Fed) agreed at the June Federal Open Market Committee (FOMC) meeting that additional evidence of inflation slowing is needed. This stance is consistent with their previous position of not rushing to cut interest rates. Meanwhile, some participants expressed caution that further labor market weakening due to restrictive monetary policy could lead to a rise in unemployment.
The minutes of the June FOMC meeting released by the Fed on the 3rd (local time) stated, "Participants expected that it would not be appropriate to lower the target range for the federal funds rate until additional information provides greater confidence that inflation is moving toward 2%."
This reaffirmed the principle of not initiating rate cuts until more evidence accumulates that inflation is steadily declining toward the 2% target, despite recent progress. They assessed that the risks to employment and achieving the inflation target have become better balanced.
Opinions among FOMC members diverged regarding the future direction of monetary policy. Some members believed patience is necessary to allow demand to weaken and inflationary pressures to ease further. They also indicated a willingness to raise rates if inflation remains elevated or rises further. Conversely, other members expressed concerns that restrictive monetary policy could accelerate the slowdown in the economy, including the labor market.
The minutes noted, "Some participants pointed out that although the labor market remains strong, the number of job openings per unemployed person has returned to pre-pandemic levels, and if labor market conditions cool further, there is a risk that the pace of layoffs could increase." They also wrote, "Some participants emphasized that monetary policy should be prepared to respond to unexpected economic weakness."
However, the majority of FOMC members viewed economic growth as "gradually cooling" and judged the current policy stance to be "restrictive."
The June FOMC minutes released that day align with the remarks made by Fed Chair Jerome Powell the previous day. Chair Powell, speaking at a panel discussion at the European Central Bank (ECB) annual forum in Sintra, Portugal, said, "We have made significant progress in bringing inflation down to target, which suggests we are on a disinflationary path," but added, "Before embarking on easing policy, we want greater confidence that inflation is moving sustainably toward the 2% target."
Earlier, at last month's FOMC, the Fed reduced its forecast for rate cuts this year from three to one. Among the 19 FOMC members, eight predicted two cuts, seven predicted one cut, and four predicted no cuts, reflecting significant differences in views. While investors expect one to two rate cuts within the year, the decision on whether to cut rates in September will depend on upcoming inflation and employment data. The July FOMC meeting scheduled for June 30?31 is expected to provide some indication of whether the Fed has built sufficient grounds to cut rates in September, which is the next meeting after July.
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