Minutes from FOMC meeting held on July 30-31 reveal that a “vast majority” of participants believe it would likely be appropriate to ease monetary policy “at the next meeting” if incoming data aligns with expectations. This signals a strong possibility of a rate cut in September.

The minutes highlighted that economic activity had shown solid growth, inflation had made some further progress toward the target, and labor market conditions had eased. However, the Committee emphasized the importance of maintaining a “data-dependent” approach. Decisions, they noted, are based on the “evolution of the economy” rather than following a “preset path,” and depend on the “totality of the incoming data” rather than any single data point.

In terms of risk management, the majority of participants acknowledged that risks to the employment goal had increased, while many noted that risks to the inflation goal had decreased. Some expressed concern that gradual easing in labor market conditions could lead to a “more serious deterioration.”

On the other hand, several participants cautioned against reducing policy restraint too quickly or excessively, warning that it could lead to resurgence in aggregate demand and potentially undo progress on inflation. They pointed to risks such as economic shocks that could drive inflation higher or the possibility that inflation could be more persistent than currently anticipated.

Full FOMC minutes here.

Fed Governor Michelle Bowman, in a speech overnight, stated that her baseline outlook anticipates further declines in inflation under the current monetary policy. Should incoming data continue to confirm that inflation is moving steadily toward the 2% target, it may become appropriate to “gradually lower” the federal funds rate. This adjustment would prevent monetary policy from becoming “overly restrictive” on economic activity and employment.

However, Bowman urged to be “patient” and “avoid undermining” the continued progress on disinflation by “overreacting to any single data point”. She emphasized that monetary policy is “not on a preset course,” and decisions will depend on upcoming economic data. By the September meeting, Fed will review additional employment and inflation reports, as well as broader financial conditions, to assess their impact on the economic outlook.

Bowman also warned of “some upside risks to inflation,” citing concerns that supply conditions, now largely normalized, may not sufficiently counteract price pressures from geopolitical tensions, fiscal stimulus, and increased housing demand driven by immigration.

She also noted that the labor market might not be as strong as payroll data suggests, and the recent rise in unemployment could be “exaggerating the degree of cooling in labor markets.”

Full speech of Fed’s Bowman here.

Minneapolis Fed President Neel Kashkari indicated that Fed’s focus is increasingly shifting toward concerns in the labor market, moving away from the inflation side of its dual mandate.

In an interview with WSI, Kashkari emphasized that “the balance of risks has shifted more towards the labor market,” making the debate over a potential rate cut in September “an appropriate one to have.”

While acknowledging that inflation is showing signs of progress, Kashkari expressed concerns about “concerning signs” in the labor market.

Despite these, he stated that there is no compelling reason to lower interest rates by more than a quarter percentage point at a time, citing the continued low levels of layoffs and unemployment benefit claims, which do not yet indicate a significant downturn in the labor market.

Chicago Fed President Austan Goolsbee stated in a CBS interview that a rate cut in September is not a foregone conclusion. But he pointed out that current economic conditions differ significantly from when Fed initially set rates at their present levels.

Goolsbee highlighted the impact of maintaining high rates while inflation decreases, noting that this approach effectively tightens monetary policy further. He warned that “if you keep too tight for too long, you will have a problem on the employment side of the Fed’s mandate.”

San Francisco Fed President Mary Daly indicated in an interview with the Financial Times that the time has come to consider gradually lowering interest rates from their current levels. Daly emphasized the importance of a cautious approach, stating, “Gradualism is not weak, it’s not slow, it’s not behind, it’s just prudent.”

She explained that while Fed aims to reduce the “restrictiveness” of its policy, it intends to maintain a level of restraint necessary to “fully get the job done” on inflation. Daly underscored the Fed’s focus on avoiding the risk of “overtightening into a slowing economy.”