Although the focus is now on September for the start of interest rate cuts by the Federal Reserve, at least some US central bank policymakers were keen to start discussions about it at last month's policy meeting.
Estimates of how many of them agree and the extent to which other policymakers view the Fed's Sept. 17-18 meeting as the preferred starting point for reducing borrowing costs will become clearer when the minutes of the July 30-31 meeting are released on Thursday.
The Federal Open Market Committee (FOMC), which sets central bank policy, ended the meeting by leaving the overnight lending rate in the 5.25%-5.50% range, where it has been since July 2023. However, policymakers agreed to make some important changes in their policy statement that opens the door to a rate cut at their meeting next month.
That expectation was further bolstered by Fed Chairman Jerome Powell's statement in his post-meeting press conference, when he said: "If we see inflation move down ... more or less in line with expectations, growth remains relatively strong, and the labor market remains consistent with current conditions, then I rate reductions may be considered at the September meeting.”
Two days after the meeting, the Labor Department reported a sharp decline in job growth in July, with the unemployment rate rising to its highest level since the pandemic at 4.3%.
In addition to causing instability in financial markets that reflect the small possibility that the Fed will rush to cut rates before its next meeting, signs of job market softness prompted some of the Fed's own policymakers to indicate that they are willing to consider a rate cut in September.
Lawmakers last month agreed to several key changes in their policy statement, softening the description of inflation and saying risks to jobs were now on par with rising prices, neutral language that paved the way for a rate cut after more than two years of tightening credit.
How those discussions played out was reflected in Thursday's minutes and could be a guide to the scope and pace of changes that now appear to be a shift to policy easing. The interest rate futures market reflects a 100% probability of a rate cut next month -with only a difference of opinion on its size: A quarter of a percent or half a percent. The odds are now more in favor of a smaller cut.
