The July minutes published by the Federal Reserve showed that, while interest rates remained constant at the time of the meeting, differences within officials over the follow-up policy path were more apparent than on the surface. Many policymakers have argued that if inflation does not continue to fall towards the 2 per cent target, there is still a need for further policy tightening during the year.
July meetings maintained interest rates
At a meeting of the Federal Open Market Commission from 28 to 29 July, the Federal Reserve maintained the benchmark interest rate at 3.5 per cent to 3.75 per cent. However, the minutes show that some officials were inclined to immediately increase interest rates, while many others felt that further increases should be retained if subsequent inflationary pressures did not diminish.
A total of 3 voting members were opposed to inaction and advocated an increase of 25 basis points. This also indicates that while the final decision was to maintain interest rates, there was no consensus within the Commission.
Inflation remains at the core of policy
Officials who support tighter policies argue that price pressures are no longer limited to a few areas and that inflation is more widespread. If action is too late, the future may have to be accompanied by a more radical series of hikes.
It was also mentioned that while most participants still expected inflation to recede, there were concerns that inflation might be above target levels in the longer term. Even with the removal of some energy and tariff factors, potential inflationary pressures remain high.
The latest data further complicates this determination. The United States slowed to 3.4 per cent in July, but the Fed is more concerned about the continuation of this improvement. Energy prices and broader supply pressures are still seen as the focus of follow-up observations.
The September meeting remains variable
The labour market also makes policy judgement more prudent. Slowing recruitment and weak employment data mean that excessive interest rates may increase the pressure for economic slowdown. This has left the Fed with a trade-off between the adhesiveness of inflation and the cooling of growth.
The next Fed meeting will be held from 15 to 16 September. Markets have downgraded the bet on short-term and immediate interest rates before and after the publication of the minutes, but the message of the summaries is that higher interest rates remain a realistic option in the event of a fall in inflation.
On the day the minutes were issued, the United States Department of the Treasury announced that it would increase the purchase of long-term national debt, which had previously seen a marked decline in the rate of return on United States debt. The change once supported the stock market and bitcoin and put pressure on the dollar. On the whole, the summary does not give a single direction, but rather preserves the possibility of continuing to wait and again increase.