The majority of Federal Reserve officials supported cutting interest rates at their next meeting in September, the minutes from the central bank’s July meeting released on Wednesday afternoon revealed.
“The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” the summary said.
“Several” policymakers were in favor of moving rates 25 basis points lower at the July meeting on falling inflation and a rise in joblessness.
Markets are fully pricing in a 25 basis point cut in September.
LPL Financial chief global strategist Quincy Krosby commented that the Fed Minutes pointed to a transition for the central bank.
“The Fed minutes underscore the debate that has ensued between the dual mandate Federal Reserve, with Fed officials debating whether there's enough confirmation to begin the easing cycle against concerns that perhaps inflation hasn't been quelled to the point of ensuring the continuation of the disinflationary path towards price stability,” Krosby said.
“Still, overall the FOMC appears comfortable enough, and concerned enough, that initiating the easing cycle will help ensure that the economic backdrop, particularly the labor market, won't deteriorate at a marked pace.”
He added that should the next payroll report come in softer than modest expectations and unemployment rises, the market and the Fed would need to consider if a 50 basis point reduction is required rather than the 25 basis points currently priced in.
LPL Financial chief economist Jeffery Roach agreed that, given the weakness in the labor market, the Fed could cut as much as half a percentage point next month.
Jamie Cox, Harris Financial Group managing partner, added that the Fed minutes removed all doubt about a September rate cut.
“The Fed's communication strategy is to make its meetings less of a market-moving event, and they are following the script to the letter,” Cox said.