Highlights
The minutes of the June 11-12 FOMC meeting reflect conditions three weeks ago. In that context,"The path of the federal funds rate implied by futures prices shifted a bit lower over the intermeeting period and indicated one and one-half 25 basis point cuts" by the end of 2024. Since half a rate cut is not going to happen, the forecast looks for almost certainly one rate cut of 25 basis points and the possibility of a second one.
FOMC participants were aware that while the first quarter showed a lack of progress on bringing inflation down,"there had been modest further progress toward the 2 percent goal in recent months". They also noted,"Recent data had also indicated improvements across a range of price categories, including market-based services." The minutes said,"participants suggested that a number of developments in the product and labor markets supported their judgment that price pressures were diminishing."
The minutes said,"Participants highlighted a variety of factors that were likely to help contribute to continued disinflation in the period ahead. The factors included continued easing of demandsupply pressures in product and labor markets, lagged effects on wages and prices of past monetary policy tightening, the delayed response of measured shelter prices to rental market developments, or the prospect of additional supply-side improvements. The latter prospect included the possibility of a boost to productivity associated with businesses' deployment of artificial intelligencerelated technology.
The reduction in the cap for reinvestments of US treasuries changed in June to $25.0 billion per month from $60.0 billion while the reinvestment cap for agency mortgage-backed securities is unchanged at $35.0 billion. Reductions in the Fed's reserve bank holdings of US treasuries and agency MBS will be slower. The survey of primary dealers suggests that respondents look for the program to end around April 2025."
Data about the labor market at the time of the meeting"pointed to a reduced degree of tightness in labor market conditions." The balancing of the labor market is ongoing with fewer job openings and less churn due to job quits, and an improved supply of labor. However, the minutes said,"Many participants noted that labor supply had been boosted by increased labor force participation rates as well as by immigration. A few participants noted that it was unlikely that immigration would continue at the pace seen in recent years. However, several participants judged that, with recent immigrants gradually becoming part of the workforce, past immigration likely would continue to add to labor supply. A few participants observed that increases in labor force participation would likely now be limited and so would not be a major source of additional labor supply."
"Several" FOMC participants noted there are signs that nominal wage growth is slowing, resulting in"easing labor market pressures"."A number of participants noted that, although the labor market remained strong, the ratio of vacancies to unemployment had returned to pre-pandemic levels and there was some risk that further cooling in labor market conditions would need careful monitoring."
The minutes said,"Participants generally observed that continued labor market strength could be consistent with the Committee achieving both its employment and inflation goals, though they noted that some further gradual cooling in the labor market may be required."
Despite the slightly more optimistic tone regarding inflation and the inflation outlook along with well-anchored inflation expectations, the FOMC remains wary of cutting rates too soon.
The minutes said,"In discussing the outlook for monetary policy, participants noted that progress in reducing inflation had been slower this year than they had expected last December. They emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee's 2 percent objective."
Nonetheless, the overall tone of the deliberations three weeks ago suggests that policymakers are seeing positive developments on inflation and enough softening in the labor market to contemplate a rate cut if and only if the data continue in this direction. The FOMC will not be in a hurry to cut rates, but if the June numbers for inflation are favorable and the labor market rebalancing remains on its present course, the timing of a rate cut could come in the third quarter and not wait for the fourth.
FOMC participants were aware that while the first quarter showed a lack of progress on bringing inflation down,"there had been modest further progress toward the 2 percent goal in recent months". They also noted,"Recent data had also indicated improvements across a range of price categories, including market-based services." The minutes said,"participants suggested that a number of developments in the product and labor markets supported their judgment that price pressures were diminishing."
The minutes said,"Participants highlighted a variety of factors that were likely to help contribute to continued disinflation in the period ahead. The factors included continued easing of demandsupply pressures in product and labor markets, lagged effects on wages and prices of past monetary policy tightening, the delayed response of measured shelter prices to rental market developments, or the prospect of additional supply-side improvements. The latter prospect included the possibility of a boost to productivity associated with businesses' deployment of artificial intelligencerelated technology.
The reduction in the cap for reinvestments of US treasuries changed in June to $25.0 billion per month from $60.0 billion while the reinvestment cap for agency mortgage-backed securities is unchanged at $35.0 billion. Reductions in the Fed's reserve bank holdings of US treasuries and agency MBS will be slower. The survey of primary dealers suggests that respondents look for the program to end around April 2025."
Data about the labor market at the time of the meeting"pointed to a reduced degree of tightness in labor market conditions." The balancing of the labor market is ongoing with fewer job openings and less churn due to job quits, and an improved supply of labor. However, the minutes said,"Many participants noted that labor supply had been boosted by increased labor force participation rates as well as by immigration. A few participants noted that it was unlikely that immigration would continue at the pace seen in recent years. However, several participants judged that, with recent immigrants gradually becoming part of the workforce, past immigration likely would continue to add to labor supply. A few participants observed that increases in labor force participation would likely now be limited and so would not be a major source of additional labor supply."
"Several" FOMC participants noted there are signs that nominal wage growth is slowing, resulting in"easing labor market pressures"."A number of participants noted that, although the labor market remained strong, the ratio of vacancies to unemployment had returned to pre-pandemic levels and there was some risk that further cooling in labor market conditions would need careful monitoring."
The minutes said,"Participants generally observed that continued labor market strength could be consistent with the Committee achieving both its employment and inflation goals, though they noted that some further gradual cooling in the labor market may be required."
Despite the slightly more optimistic tone regarding inflation and the inflation outlook along with well-anchored inflation expectations, the FOMC remains wary of cutting rates too soon.
The minutes said,"In discussing the outlook for monetary policy, participants noted that progress in reducing inflation had been slower this year than they had expected last December. They emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee's 2 percent objective."
Nonetheless, the overall tone of the deliberations three weeks ago suggests that policymakers are seeing positive developments on inflation and enough softening in the labor market to contemplate a rate cut if and only if the data continue in this direction. The FOMC will not be in a hurry to cut rates, but if the June numbers for inflation are favorable and the labor market rebalancing remains on its present course, the timing of a rate cut could come in the third quarter and not wait for the fourth.
Definition
Detailing the issues of debate and consensus among policymakers, the Federal Open Market Committee issues minutes of its latest meeting three weeks after the meeting.
Description
The FOMC has changed dramatically in the transparency of its operations. It now discloses policy changes at the end of each meeting. Historically, the Fed used to keep investors guessing about policy changes and Fed officials did not appear on the speaking circuit as frequently as they do now.
The Fed's minutes are a market mover as investors and analysts parse each word looking for clues to policy. The minutes include the complete economic analysis compiled by Fed officials and opinions at odds with the consensus.
Investors who want a more detailed description of Fed opinions will generally read the minutes closely. Fed officials also make numerous speeches, which give their views to the public at large.
The Fed's minutes are a market mover as investors and analysts parse each word looking for clues to policy. The minutes include the complete economic analysis compiled by Fed officials and opinions at odds with the consensus.
Investors who want a more detailed description of Fed opinions will generally read the minutes closely. Fed officials also make numerous speeches, which give their views to the public at large.
