Federal Reserve minutes: Waning inflation, job market slump indicate rate cut ahead

Waning inflation, a slump in the US job market, and a cooling economy are likely to prompt a rate cut in the coming months, the minutes of the Federal Reserve's meeting held between June 11-June 12 indicate.

Here are the other key highlights from the Federal Reserve meeting:

• With the continuing downward trends in inflation and employment, the Fed will likely cut its benchmark interest rate in the coming months from 5.3%, a 23-year peak. The current interest rate is unchanged at 5.25% to 5.50%.
• Several factors could ease inflation in the coming months, including the slower growth in wages, which will reduce pressure on companies to raise prices to cover their labour costs.
• The Fed highlighted several cases of retail chains and other businesses lowering prices and offering discounts, a sign that customers increasingly resist higher prices.
• However, more evidence was needed to show that inflation was returning sustainably to the Fed's 2% target. The Fed signalled it is in no rush to reduce borrowing costs.
• Consumers, particularly lower-income households, are spending less, companies are advertising fewer job openings and economic growth weakened in the first three months of 2024.

• Unlike the previous Fed meetings, the officials cited concerns that a further cooling in the job market might lead to increased layoffs. So far, slowing demand for workers is seen in the form of fewer job postings.
• The minutes also showed signs of a slowdown. “The vast majority of participants assessed that growth in economic activity appeared to be gradually cooling, and most participants remarked that they viewed” the central bank’s benchmark rate as high enough to slow growth and inflation,” the minutes of the Fed meeting showed.
• Lower- and moderate-income households are “encountering increasing strains as they attempt to meet higher living costs.”
• Strains on lower- and moderate-income households prompted increasing use of credit cards and delinquency rates, which has become a concern, according to the minutes.

The minutes of the Fed’s meetings provide key details behind the thinking of policymakers, especially about how their views on interest rates might be evolving. The financial markets are eagerly awaiting more clarity about the likely timetable for the Fed to begin cutting its benchmark rate. Rate cuts by the Fed would likely lead, over time, to lower borrowing costs for mortgages, auto loans, credit cards and business borrowing, and could also boost stock prices.

The issue of the possible rise in layoffs shows that the Federal Reserve’s policymakers are considering different policy goals, such as stable prices and maximum employment. That is a shift from the previous two years, when the Fed was focused solely on curbing inflation, which reached a four-decade high of 9.1% in 2022.