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The Federal Reserve officials believed that US inflation was moderating but wanted more assurance before deciding to lower interest rates from their 23-year peak, as per the minutes of their latest meeting.
According to the June meeting minutes released on Wednesday, “Participants indicated that various developments in the product and labor markets supported their view that price pressures were diminishing.”
Some policymakers also observed that retailers were starting to offer discounts due to weakening consumer demand.
However, members of the Federal Open Market Committee believed that they should maintain rates at the current range of 5.25-5.5 percent until they had “greater confidence” that inflation was moving steadily towards the Fed’s 2 percent target, the minutes mentioned.
The minutes follow months of concern that inflation was not easing as quickly as desired by Fed officials, leading them to be cautious about reducing borrowing costs too swiftly.
The Fed had significantly raised rates two years ago to combat inflation that had surged to multi-decade highs in 2022. Inflation dropped rapidly last year, with the central bank’s preferred gauge falling to 2.6 percent in May. However, it remains above the target.
Nevertheless, the meeting record also highlighted worries among some policymakers that if rates stayed high for too long, unemployment could rise too rapidly.
The Bureau of Labor Statistics is set to release a highly anticipated report on the job market on Friday. Economists surveyed by Bloomberg predict that 190,000 jobs were added in June, representing a significant slowdown from the previous month.
Officials indicated during the June meeting that they anticipate a single rate cut this year, down from their previous forecast of three cuts.
Inflation and high interest rates have posed a political challenge for President Joe Biden, with polls indicating that voters are dissatisfied with the cost of living in recent years and his economic policies.
Traders in the futures market are currently pricing in a 70 percent probability of a rate cut in September — the final policy decision before the presidential election on November 5. Nearly two cuts are expected by the end of the year. The central bank’s next meeting is scheduled for July 31.
In their statement following the last meeting, rate-setters suggested that factors such as the impact of two years of elevated rates on consumer demand, labor market improvements, and supply enhancements would contribute to further disinflation.