Bankinter: Fed minutes of the 30/31 July meeting: Main messages:
(i) Current situation: the economy is advancing solidly, albeit at a markedly slower pace than in 2H23, the labour market is cooling and inflation is moderating, although it remains somewhat elevated.
(ii) Outlook: lower growth in 2H24 due to a weaker labour market, but growth in 2025 and 2026 will remain in line with its long-term potential. Unemployment could pick up somewhat more in 2024 and will remain stable in the following 2 years. The inflation outlook is slightly lower than projected at the previous meeting. In 2026 core inflation is expected to be in the vicinity of the 2% target. Risks to inflation remain tilted to the upside, albeit less strongly than before, and risks to growth are to the downside. The Fed reflects greater confidence that inflation is moving steadily towards its target.
(iii) Monetary policy: all FOMC members consider it appropriate to keep rates unchanged at 5.25%/5.50% at this meeting, although some consider that a -25 bp cut might have been plausible. They need additional information to gain more confidence in a sustained moderation of inflation. If upcoming data move in the expected direction it will be appropriate to cut rates at the next meeting, although the approach at subsequent meetings should remain data dependent.
Opinion of Bankinter’s analysis team: Although the Fed acknowledges that the risks on employment and inflation have balanced out, it paints a picture of growth in line with long-term potential (~+1.8%), employment that is moderating but remains at solid levels, and inflation that, although still lacking sufficient confidence at this meeting, is moving towards its 2% target.
They acknowledge quite explicitly that, if the data meet their expectations, it will be appropriate to implement a first rate cut at the 18 September meeting, although thereafter, without wishing to commit to a predefined course of action, they will maintain the data-dependent approach. In short, the Minutes reflect a cautious tone, far removed from the alarmism that was unleashed in the market after a weak employment figure in June affected by weather factors, which reaffirms the expectation of a first cut of -25 bp in September. The minutes do not have a significant impact on the market, bonds and the dollar hardly change after their release.
