The summary of the Federal Open Market Committee (FOMC) meeting revealed that officials of the U.S. central bank are increasingly confident that inflation is moving closer to the target of 2 percent set by the institution.
Considering the risks in employment and the decreasing inflation challenges, the majority of participants agreed that it would be appropriate to ease policy restrictions in the upcoming month.
According to the meeting minutes, participants viewed the incoming data as strengthening their confidence in the objective of the committee to move inflation towards the desired level. If the data continues to align with expectations, it is likely that policy easing will be implemented in the next meeting.
Some meeting participants highlighted a plausible case for a rate cut at the July meeting, citing progress in inflation and the increase in the unemployment rate as reasons for their stance.
However, a few participants noted that inflationary pressures could persist due to the strong momentum in the economy. They emphasized that even with some easing of labor demand, the labor market remains robust.
The growth outlook for the second half of 2024 was revised downward by staff economists in response to weaker-than-expected labor market indicators.
Consequently, the minutes stated that the output gap at the beginning of 2025 was narrower than the previous projection, although still not fully closed. Real GDP growth in 2025 and 2026 is anticipated to align with potential, resulting in a relatively flat output gap during those years. The unemployment rate is expected to show a slight increase for the remainder of 2024, followed by a relatively stable level in 2025 and 2026.
Several participants cautioned that insufficient or delayed policy easing may pose a risk of unnecessarily weakening economic activity or employment.
Following the July policy meeting, the Federal Reserve maintained its benchmark interest rate at a 23-year high within a range of 5.25 percent to 5.5 percent.
During a post-meeting news conference on July 31, Federal Reserve Chair Jerome Powell stated that the overall sentiment among the committee is that the economy is approaching a point where it would be appropriate to reduce the policy rate. He mentioned that if the data, outlook, and risks align with rising confidence in inflation and the labor market’s stability, a reduction in the policy rate could be on the table as early as the next meeting in September.
Powell also indicated that as the Federal Reserve observes disinflation across the broader economy and diminishing inflation risks, one can anticipate a move towards lower policy rates.
Given that the Federal Reserve is close to achieving price stability, one of its primary mandates, Powell noted that there may be a greater focus on the job market moving forward.

The Federal Reserve has been unwinding its holdings, including Treasury bonds, since June 2022. It remains uncertain whether the central bank plans to maintain its sizable balance sheet, which expanded after the COVID-19 pandemic, in the long term.
This spring, Powell mentioned to reporters that the tapering efforts related to the Federal Reserve’s balance sheet could soon come to a close.
In June, policymakers announced a reduction in the cap for matured Treasuries without reinvestment, decreasing it to $25 billion per month from the previous $60 billion.
A chorus of Fed officials, including Lorie Logan, president of the Federal Reserve Bank of Dallas, have suggested that reducing the pace of tapering could facilitate a smooth balance sheet runoff without causing disruptions in financial markets.
Nevertheless, it is unlikely that the Federal Reserve will reduce its balance sheet to the level it was a decade ago, as indicated by Rob Haworth, senior investment strategy director for U.S. Bank Wealth Management.
U.S. Treasury yields continued their downward trend, with the benchmark 10-year yield declining below 3.77 percent. The two- and 30-year yields also dropped to 3.9 percent and 4.04 percent, respectively.
The U.S. Dollar Index, which measures the performance of the dollar against a basket of currencies, extended its losses midweek and fell to 101. As a result, the index’s year-to-date gain was erased, leaving it down by approximately 0.3 percent.
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