Federal Reserve Meeting Minutes: Waiting for more information to gain confidence in rate cuts, the vast majority of officials believe the economy is gradually cooling down

The recently released minutes of the Federal Reserve meeting reiterated the Fed policymakers' wait-and-see stance. At last month's meeting, they believed that more data was needed to confirm the confidence to start cutting interest rates, with most people believing that the U.S. economy is cooling down.

Renowned financial journalist Nick Timiraos, also known as the "New Fed News Agency," subsequently published an article titled "Fed Officials Suggest No Rush to Cut Interest Rates." The article began by stating that due to high inflation, Fed officials did not have enough confidence to cut interest rates. Some decision-makers at last month's meeting called for close attention to signs that the labor market may be weakening faster than expected.

Timiraos also posted on social media, commenting that although the minutes of this meeting did not provide a clear signal of the policy path, the discussion in the minutes about changes in inflation and the labor market situation hardly hinted that the Fed was afraid of the economy overheating or policy being too loose. He cited an example where the minutes showed that companies contacted by Fed officials revealed a decrease in their pricing power.

Emphasizing that it is not appropriate to cut interest rates until there is more confidence in inflation reaching the target

The minutes of the meeting released on Wednesday, July 3, Eastern Time, showed that at the last Federal Open Market Committee (FOMC) meeting on June 12, meeting Fed officials discussed the outlook for monetary policy. They pointed out that progress in lowering inflation this year was slower than they expected in December last year and emphasized that it is not appropriate to cut interest rates unless there is more confidence that inflation can continue to decline to the Fed's target. The minutes stated:

"They (meeting officials) emphasized that they expect, with more information, to be more confident that inflation is continuing to move toward the (FOMC) committee's 2% target before lowering the federal funds rate target range."

Following this statement, the minutes mentioned that when discussing individual views on policy rates, participants emphasized an importance, that is, to make future decisions based on upcoming data, evolving economic outlook, and risk balance.

Several participants pointed out that financial market reactions to data and feedback received from contacts indicate that the FOMC's policy approach is generally well understood.

Some participants suggested that by emphasizing the FOMC's reliance on data, that is, monetary policy decisions depend on economic developments rather than following a preset path, perhaps the FOMC's response function can be further clarified. A couple of participants stated that providing more views on the economic outlook and risks by the FOMC would enhance the public's understanding of FOMC decisions.

Many believe that if inflation remains high or further rises, it may be necessary to raise interest rates

When discussing risk management considerations that may affect the policy outlook, participants believed that as the tightness in the U.S. labor market eases and inflation has declined over the past year, the risks of achieving the Fed's employment and inflation goals have become more balanced. Monetary policy will be able to effectively address the risks and uncertainties faced in achieving the dual mandate of employment and inflation Minutes wrote:

"The vast majority of participants believe that economic activity growth seems to be gradually cooling down, with most participants indicating that they view the current policy stance as restrictive."

Some participants pointed out that there is uncertainty about the degree of restriction in current policies. Some participants stated that the continued strong economy and other factors may imply that the long-term equilibrium interest rate is higher than previously assessed, in which case both the monetary policy stance and overall financial conditions may not appear as restrictive.

Several participants noted that compared to assessing the restrictiveness of current policies, the long-term equilibrium interest rate is more indicative of how policy rates may need to change in the long run. Participants highlighted that the economic outlook and the duration of the restrictive policy stance are uncertain.

Some participants emphasized the need for patience in waiting for the FOMC's restrictive policies to dampen total demand and further ease inflation pressures. Several participants pointed out that if inflation remains high or continues to rise, rate hikes may be necessary.

Many Advocate Monetary Policy Preparedness for Unexpected Economic Weakness

The minutes stated: "A number of participants pointed out that monetary policy should be prepared at all times to address unexpected economic weakness."

Following this statement, the minutes noted that several participants particularly emphasized that as the labor market normalizes, further weakening demand may now have a greater impact on unemployment than in the recent past, with recent declines in labor demand more reflected in reduced job vacancies.

Regarding changes in the inflation situation, the minutes stated that participants believe that although inflation rates remain high, there has been modest further progress towards the Fed's 2% target in recent months.

Participants observed some clear progress, including smaller monthly changes in the core PCE price index, a decrease in the average inflation rate in April, and additional evidence from May CPI data. Recent data also show improvements in inflation across a range of price categories, including market-based services.

Deployment of AI Technology by Companies May Boost Productivity and Help Lower Inflation

The minutes mentioned that in discussing the inflation outlook, participants emphasized various factors that may help lower inflation in the near future, including continued easing of supply and demand pressures in product and labor markets, the lagged impact of previous monetary tightening on wages and prices, delayed response of housing prices to changes in the rental market, and prospects for further improvement on the supply side.

Among these, the prospects for supply-side improvement include the deployment of artificial intelligence (AI) technology by companies to potentially boost productivity.

Participants noted that long-term inflation expectations remain well anchored and consider this stability as the foundation for downward inflation. Participants confirmed the need for more favorable data to strengthen their confidence in inflation continuing to move towards 2%