Fed Minutes Reveal Signs of Economic Slowdown and Easing Inflation Pressures
Federal Reserve officials acknowledged at their latest meeting that the US economy appeared to be slowing and that there were signs of diminishing price pressures, according to the minutes of the June 11-12 session released on Wednesday.
The minutes highlighted a weak May reading in the consumer price index among "a number of developments in the product and labor markets" indicating a decline in inflation. Some participants noted that wage growth had slowed, while others pointed to major retailers cutting prices and reports from business contacts indicating reduced pricing power.
US WAGE GROWTH:
Fed Holds Steady on Rates Amid Signs of Easing Inflation
Despite signs pointing towards decreasing inflation, Federal Reserve policymakers were not yet prepared to signal interest rate cuts. The minutes emphasized that officials did not foresee lowering the federal funds rate target range until more information confirmed sustainable movement toward the 2% inflation target.
During the meeting, the year-on-year personal consumption expenditures price index stood at 2.7% in April, which policymakers deemed "elevated" and only showing "modest" improvement since the previous meeting. This warranted a continued tight monetary policy stance despite indications of economic slowdown and weakening price pressures.
The US government reported a drop in the PCE to 2.6% in May, further reflecting the easing inflationary pressures.
US PERSONAL CONSUMPTION INDEX:
Fed Minutes Highlight Gradual Economic Cooling and Restrictive Policy
Most participants observed a gradual cooling in economic activity and viewed the current policy stance as restrictive, likely to restrain both economic growth and inflation further.
While the Fed opted to keep the policy rate steady between 5.25% and 5.50%, participants acknowledged slower progress in reducing inflation compared to earlier expectations. Some highlighted the need for patience before considering rate cuts, while others suggested the possibility of raising rates if inflation rebounded unexpectedly.
Overall, the minutes were interpreted as leaning dovish, with a focus on multiple factors aligning towards lower inflation. Economists anticipated a measured approach by the Fed, responsive to evolving economic data and prepared to adjust policy decisions accordingly.
Looking ahead, the Fed's July 30-31 policy meeting will incorporate updated data including the June employment report, CPI figures on July 11, and an initial estimate of second-quarter economic growth on July 25.