US central bank officials kept rates unchanged at the Federal Open Market Committee meeting on July 30-31, but opened the door to a cut at the September 17-18 session.
As inflationary pressures ease, financial markets expect the Fed to cut its benchmark rate next month by a quarter percentage point from the current range of 5.25%-5.50%, where it has been pegged for more than a year.
A relaxation of up to one percentage point is expected by the end of the year.
At the July meeting, “the vast majority” of policymakers “noted that if the data remained more or less as expected, it would likely be appropriate to ease monetary policy at the next meeting,” according to minutes released Wednesday.
They also noted that “many” Fed officials viewed the rate stance as restrictive and that “a few participants” argued that, amid continued cooling in inflationary pressures, no rate change would mean that monetary policy would further drag on economic activity.
The minutes indicated that while all officials agreed to hold rates steady in July, “several” said progress in reducing inflation amid rising unemployment “had provided a plausible case for lowering the target range by 25 basis points at this meeting or might have supported such a decision.”
The Fed’s case for rate cuts is based on price pressures receding toward the central bank’s 2% target and rising anxiety about the labor market situation following a recent data showing an increase in the unemployment rate.
The speed of the jump in the unemployment rate, which hit a low of 3.4% early last year and has since climbed to 4.3% in July, has added urgency to the debate over rate cuts and led some analysts to say a half-percentage point reduction in borrowing costs should be considered in September.
