A majority of officials at the US central bank (Fed) at the end of July opened the way for a reduction in the institution’s interest rates at the next meeting, scheduled for mid-September, given that inflation data allowed it. At the last Fed meeting on 30-31 July, “several members emphasized that recent progress in the fight against inflation and rising unemployment argued for a cut of 25 basis points” at the September meeting, according to the minutes of the Fed Monetary Committee (FOMC) released on Wednesday. However, this opinion was not a majority.
But “The vast majority emphasize that if the data continues in the expected direction, it will probably be appropriate to ease (monetary) policy at the next meeting”. The report also points to “confidence” members of the FOMC face data that “underline that inflation is heading towards the target” by 2%. US markets have shown signs of jitters in recent weeks, notably marked by a sudden drop on Wall Street about ten days ago, amid concerns about a possible risk of recession in the country.
Jerome Powell will speak at the end of the week
Fed Chairman Jerome Powell is expected to address the issue at the annual central bank meeting in Jackson Hole, Wyoming, starting Friday and continuing through the weekend. The vast majority of analysts expect an initial rate cut of 0.25 percentage points in September, then regular cuts at the following two meetings before the end of the year, according to the group’s FedWatch monitoring tool.
After continuing to decline in 2023, US inflation saw a slight rebound in early 2024 before easing slightly, effectively postponing a first downward move in interest rates initially expected by markets in the second quarter of the year. But prices appear to have resumed a slowing pace to move closer to the Fed’s long-term 2% target, while at the same time the US unemployment rate has risen slightly to 4.3%.
The Fed has a dual mandate, keeping price increases around the 2% target combined with a full employment target. Over the past two years, historically low unemployment in the US has made it possible to focus solely on the fight against inflation, which had risen to 9.5% per year by mid-2022.