Minutes from the July FOMC meeting revealed little new information and were a bit stale given the developments that happened since.
However, the data was “a bit less hawkish-stale than we feared they might be,” Evercore analysts noted Wednesday, “and confirm the debate was already swinging firmly in favor of cuts.”
The "vast majority" of Fed officials indicated that if the data aligned with expectations, a rate cut in September would be appropriate, with "several" suggesting they might have supported a cut in July, the minutes summary stated.
The tone on inflation appeared notably more benign, with most policymakers viewing risks as becoming more balanced. Inflation risks were perceived as decreasing while employment risks were rising, though not fully balanced or favoring employment concerns.
Meanwhile, there was extensive discussion regarding a softening labor market, potentially emphasized by the staff who drafted the minutes.
"Some" officials highlighted "the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration," while "many" noted that acting too late or too cautiously in reducing restraint could jeopardize activity and employment, according to the summary.
“Staff no longer saw unemployment going down, and forecast it going up a bit before stabilizing,” Evercore analysts commented.
“We think this staff outlook, which is still hard to reconcile with diminishing resource utilization under restrictive policy, must assume falling participation and may lowball the implications of weaker labor demand.”
Fed officials were already considering the possibility that payroll growth might be overstated and insufficient to prevent a rise in unemployment if labor force participation remains stable. There was no discussion of a 50 basis point move, with Powell shaking his head when asked about this during the press conference.
However, this lack of discussion isn't surprising and is not seen as a major signal, analysts note.
The overall tone appears slightly dovish, suggesting it may not be too difficult for Chair Powell to guide the Committee toward a baseline of three consecutive 25 basis point cuts through the end of 2024. A 50 basis point cut could be on the table, but only if upcoming labor data "aligns with and validates the more pronounced weakening in the July employment report,” they added.