2024-08-21 18:33:26
The Federal Reserve decided unanimously at its meeting on July 31 to keep interest rates at their highest level in 23 years. However, it was revealed in the minutes of that meeting last Wednesday that members were already prepared to approve the first reduction that day. Having missed that opportunity, the countdown to the first drop in the price of silver in the United States in four and a half years is underway. The markets have set a date: September 18, when the next meeting of the Federal Reserve’s Open Market Committee ends.
The Fed’s minutes reinforce that idea. “Some noted that recent developments in inflation and increases in the unemployment rate provided a credible case for lowering the target range.” [de los tipos] 25 basis points at this meeting or that could support such a decision,” says the document published by the central bank. “The vast majority noted that if the data remained more or less as expected, it would probably be appropriate to relax the policy at the next meeting,” he said.
Some economists believe that inflation concerns have come after the Federal Reserve has been too slow to lower rates and believe it is behind the curve. Some of its members, from what we see now, were willing to proceed more quickly, although for the sake of unanimity they ended up supporting the group’s decision.
The markets are betting on a decrease of 0.25 points in September, although they do not completely close the door on the possibility of it being 0.50. After the publication of the minutes, this situation has gained some probability, as evidenced by the prices of federal funds futures. Investors are waiting this Friday for the hints that the president of the Federal Reserve, Jerome Powell, may give at the Jackson Hole economic symposium. After the meeting on July 31, Powell avoided being involved in the possible rate cut for September, but his messages already pointed in that direction. The central bank’s statement highlighted further progress on price controls and a weakening labor market. Federal Reserve minutes show the same thing.
The dual mandate of the US central bank is to seek price stability and full employment. It has resulted in high inflation targeting prices for the past two and a half years, but now it is the labor market that is starting to worry more and more. This is reflected in the document published last Wednesday. “On the inflation outlook, participants felt that recent data increased their confidence that inflation was moving steadily towards 2%. Almost all participants noted that the factors that contributed to recent disinflation are likely to continue to exert downward pressure on inflation in the coming months. “These factors included a continued decline in pricing power, moderation in economic growth, and a drain on excess household savings accumulated during the pandemic,” the minutes state.
The Federal Reserve is conditioning the first reduction in months to increase its confidence that inflation is moving steadily towards 2% and members of the central bank now seem to have more confidence. At the same time, their concerns about the labor market increase. “Most participants noted that risks to the employment target had increased, while many participants noted that risks to the inflation target had decreased,” the minutes state. “Several participants expressed the risk of a more serious deterioration if labor market conditions were gradually reduced,” they say.
After the July meeting, annual inflation fell below 3% for the first time since March 2021 and employment data has supported the thesis of a weakening labor market. In fact, investors even discounted a 0.5 point cut at the September meeting. Now, after other data showing the resistance of consumption, the market sees a decrease of 0.25 points more likely, which would in any case be the first since March 2020.
In addition, the Bureau of Labor Statistics, under the Department of Labor, published a statistical review this past Wednesday showing that the US economy created 818,000 fewer nonfarm jobs than originally reported in the year from April 2023 to March 2024. That which was not there. It seemed that good progress was being made in the statistics as the two surveys by which the Department of Labor measures the labor market showed conflicting results.
With the new figures, average employment growth was 174,000 jobs per month in that period, which represents a decline of 68,000 jobs per month compared to the 242,000 initially reported. They are preliminary revisions, and the final figures will be published in February next year. As of September 18, some employment and price data have yet to be released, but what is known reinforces the idea that there will be a decline.
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