The Federal Reserve Minutes Confirm Rate Cuts Heads

Fed Minutes Confirm Cuts Ahead 

Given the recent labor market and inflation data, most market participants believe the Fed should have cut rates in July. And July’s FOMC Minutes showed they might not have been far off base. 

“The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.” The question now is whether the Fed will cut 25 or 50 bps.

Several members already believe a July cut would’ve been appropriate, so some analysts believe a 50 bp cut could happen if the data continues to come in soft between now and then. 

Today’s nonfarm payroll growth helped that case, with the Bureau of Labor Statistics saying job growth was nearly 30% below initially reported (818,000 fewer jobs) than the 2.90 million from April 2023 through March 2024.

These revisions imply monthly job gains of 174,000 instead of 242,000, indicating a strong (but not as strong as initially indicated) labor market.

At the sector level, the biggest downward revision came in professional and business services (-358,000). Other areas revised lower included leisure and hospitality (-150,000), manufacturing (-115,000), and trade, transportation, and utilities (-104,000). 

With that said, the labor market remains strong given the recent uptick in unemployment rate has been driven by people returning to the workforce rather than a surge in layoffs or other separations.

The Fed had been looking for slow growth, and that’s what it’s got. Eyes are on Jackson Hole tomorrow to see if Jerome Powell tips his hand any further about the upcoming September meeting.