[News] July FOMC Meeting Minutes Highlight Rising Labor Market Risks, Indicating Dovish Policy Outlook

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The Federal Reserve released the minutes of the July FOMC meeting on August 21, providing insight into the views of Fed officials on the current economic conditions and outlook:

 

Inflation: Inflation has eased compared to a year ago, with core PCE rising 2.6% year-over-year in June. Although still above the Fed’s 2% target, recent data have given Fed officials confidence that inflation is on track to reach the target, supported by factors such as slowing economic growth, weakened pricing power among businesses, and reduced household savings. Many officials noted that as the labor market rebalances, wage growth has continued to slow, which should further translate into a decline in core non-housing services inflation. Some officials also noted that the decline in new tenant rents is likely to have a delayed impact on housing services inflation, leading to the continuous moderation of housing services inflation

 

 

Employment: The labor market is currently strong but not overheating. While the unemployment rate has been rising slightly since April, it remains at historically low levels. Some officials believe that job growth may be overestimated, as several officials pointed out that various indicators suggest the labor market is continuing to slow, with declines in hiring rates and job openings. Others also indicated that the rebalancing of the labor market has been partly supported by an increase in labor supply, particularly due to rising labor force participation rates among those aged 25 to 54 and an increase in immigration.

 

 

Policy Outlook: With inflation continuing to decline, most officials believe that if inflation continues to fall as expected, it would be reasonable to consider easing monetary policy at the next meeting. Many officials see increasing risks to the employment target, warning that if the labor market slows further, it could lead to more significant deterioration. All officials agreed on the necessity of rebalancing and closely monitoring the risks associated with the dual mandate of price stability and maximum employment.

 

Overall, with inflation steadily decreasing and potential risks of labor market deterioration, the Fed has signaled a leaning toward a rate cut in September. Additionally, the U.S. Bureau of Labor Statistics on August 21 revised down the nonfarm payrolls by 818,000 from April 2023 to March 2024, meaning that the average monthly nonfarm payroll increase for this period will be revised down from 242,000 to 174,000, confirming the possibility that employment growth had been overstated. The market currently expects a total of 100 basis points in rate cuts throughout 2024 (25 basis points in September, 50 basis points in November, and 25 basis points in December).

 

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(Photo Credit: Federal Reserve)