At their latest meeting, U.S. Federal Reserve officials welcomed signs of easing inflation and highlighted data that appear to show a slowdown in the labor market and the broader economy.
Both trends, if they continue, will likely lead the Fed to cut its benchmark interest rate in the coming months from its 23-year high of 5.3%.
Minutes from the Fed’s June 11-12 policy meeting, released Wednesday, showed that policymakers saw several factors that could further dampen inflation in the months ahead. Those factors include slower wage growth, which reduces pressure on businesses to raise prices to cover labor costs.
Policymakers also highlighted several instances of retail chains and other businesses lowering prices and offering discounts, a sign that customers are increasingly resisting higher prices.
However, officials also said more evidence was needed to show that inflation was returning sustainably to the Fed’s 2% target. They indicated they were in no rush to cut borrowing costs.
The Fed’s meeting minutes sometimes provide key details about policymakers’ thinking, including how their views on interest rates might evolve. Financial markets are eagerly awaiting more clarity on the Fed’s likely timeline for starting to cut its benchmark rate. Rate cuts by the Fed would likely lead to lower borrowing costs over time for mortgages, auto loans, credit cards and business loans, and could also boost stock prices.
In a notable change from previous Fed meeting minutes, officials expressed concerns that a further cooling in the labor market could lead to more layoffs. So far, the slowdown in demand for workers has mostly manifested itself in the form of fewer job openings.
Their expressed concern about a potential increase in layoffs suggests that central bank policymakers are starting to take more account of their two policy goals: stable prices and maximum employment. That’s a shift from the previous two years, when the Fed focused solely on slowing inflation, which in 2022 hit a four-decade high of 9.1%.
Although Fed officials generally view the economy as healthy, the minutes showed greater concern about signs of a slowdown. Consumers, particularly lower-income households, are spending slightly less, businesses are announcing fewer job openings and economic growth has weakened in the first three months of 2024.
“The vast majority of participants felt that growth in economic activity appeared to be gradually slowing, and most participants noted that they viewed” the central bank’s benchmark rate as high enough to slow growth and inflation, the minutes said.
After last month’s meeting, Fed officials issued a statement saying inflation had begun to slow back toward its 2% target. But they also lowered their expectations for rate cuts this year, from three to just one.
However, at a recent press conference, Fed Chairman Jerome Powell downplayed the one-cut forecast and said that both one-cut and two-cut scenarios were equally plausible. Four of the 19 policymakers said they did not envision any rate cuts this year. The remaining 15 officials were roughly evenly split between one and two cuts.