Inflation concerns from import tariffs have kept most Fed officials from seeing a chance of easing monetary policy this month.
Minutes released on July 9 by the US Federal Reserve (Fed) showed that at last month's meeting, only a few officials saw a possible rate cut in July. Most said it would be more appropriate later in the year, when the price shock from import tariffs was assessed as "mild or temporary".
Most remain concerned about inflationary pressures from President Donald Trump's trade policies. There was no sign that any officials supported cutting rates by a few percentage points as Mr. Trump has demanded. Some even said that there was no need to cut rates further at this time.
The Fed has kept rates unchanged since the beginning of this year. Mr. Trump has repeatedly called on the agency to cut rates aggressively immediately, even wanting Fed Chairman Jerome Powell to resign.
Some policymakers believe that the current interest rate (4.25-4.50%) is very close to neutral, meaning it neither stimulates nor slows down the economy. Previous forecasts showed that even the most dovish officials only expected a cut of less than 1 percentage point this year, and no more than 1% next year.
After the minutes were released, traders continued to reduce their already low expectations for a rate cut at the July 29-30 meeting. Investors now expect the agency to cut a total of 50 basis points (0.5%) this year. This figure matches the Fed's plan.
"Members agreed that economic growth and the labor market remain solid. Monetary policy is currently only moderately tight, and the Fed will be patient as it awaits clearer signals on inflation and the economic outlook," the minutes said.
However, Fed officials were divided on the outlook for demand in the economy. Some said consumption remained strong. Others saw signs of weakness. Some pointed out that low-income households were switching to cheaper goods and would be hit hard by higher prices from tariffs.
Most officials were cautious about adjusting policy, given the many unknowns. In particular, the actual level of tariffs Mr. Trump would impose and how businesses and consumers would respond. "Officials agreed that adjustments to monetary policy should continue to be approached cautiously," the minutes said.
The Fed is expected to cut rates by 0.25 percentage points in two rounds in the second half of the year, with investors expecting the first cut in September and the second in December.
(Reuters)