The Steady Drip: Federal Reserve Poised to Cut Interest Rates in September: Minutes (Connecting the Dots: Federal Reserve, BlackRock, The Carlyle Group, The Economic Club of Washington, Princeton University, U.S. Treasury & Soros Funding, All Networking)

Federal Reserve Poised to Cut Interest Rates in September: Minutes (Connecting the Dots: Federal Reserve, BlackRock, The Carlyle Group, The Economic Club of Washington, Princeton University, U.S. Treasury & Soros Funding, All Networking)

Some July meeting participants had favored a July rate cut.

By Andrew Moran

8/21/2024 Updated: 8/22/2024

The Federal Reserve building in Washington in a file photo. Chip Somodevilla/Getty Images

https://www.theepochtimes.com/business/federal-reserve-poised-to-cut-interest-rates-in-september-minutes-5710132

The “vast majority” of Federal Reserve officials would likely support cutting interest rates in September if the data continue to favor looser monetary policy, according to minutes from the July meeting.

The meeting summary of the policymaking Federal Open Market Committee (FOMC) highlighted that U.S. central bank officials are becoming increasingly confident that inflation is moving toward the institution’s target of 2 percent.

With employment risks forming and inflation challenges decreasing, most participants agreed that easing policy restrictions would be appropriate next month.

“Participants viewed the incoming data as enhancing their confidence that inflation was moving toward the committee’s objective,” the minutes read. “The vast majority observed that if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”

“Several” meeting participants noted that there was a “plausible case” supporting a rate cut at the July meeting amid the progress on inflation and the increase in the unemployment rate.

At the same time, a “couple” of participants noted that inflationary pressures could persist because “the economy had considerable momentum, and that, even with some easing of the demand for labor, the labor market remained strong.”

Staff economists trimmed their growth outlook for the second half of 2024 “in response to weaker-than-expected labor market indicators.”

“As a result, the output gap at the start of 2025 was somewhat narrower than had been previously projected, although still not fully closed,” the minutes read. “Over 2025 and 2026, real GDP growth was expected to rise about in line with potential, leaving the output gap roughly flat in those years. The unemployment rate was expected to edge up slightly over the remainder of 2024 and then to remain roughly unchanged in 2025 and 2026.”

Many participants warned that easing restrictive policy “too little or too late” could threaten “unduly weakening economic activity or employment.”

Following the July policy meeting, the Fed left its benchmark interest rate at a 23-year high within a range of 5.25 percent to 5.5 percent.

Fed Chair Jerome Powell signaled that a rate cut could be discussed as early as next month’s meeting, although he stopped short of saying whether the central bank will follow through on a quarter-point or half-point reduction.

“The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate,” Powell said at a post-meeting news conference on July 31.

“The question will be whether the totality of the data, the evolving outlook in the balance of risks, are consistent with rising confidence on inflation and maintaining a solid labor market. If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”

Powell told reporters that as the Fed observes “broader disinflation” across the economy and dissipating upside inflation risks, one “would think policy rates would move down from here.”

With the Fed close to restoring price stability—one of the institution’s chief mandates—Powell noted that there could be more of a focus on the job market.

U.S. Federal Reserve Board Chair Jerome Powell speaks during a news conference in Washington on Feb. 1, 2023. Saul Loeb/AFP via Getty Images

Last month, the unemployment rate rose to 4.3 percent, the highest since October 2021. The higher-than-expected jobless figure triggered the Sahm rule, a widely watched recession indicator.

Ahead of the FOMC meeting on Sept. 17 and 18, the Fed will still have more inflation data to digest and another jobs report to comb through.

Balance Sheet Unwinding

According to the FOMC minutes, officials stressed the importance of monitoring the money markets—a part of the financial markets that offer short-term funds—amid the ongoing reduction of the central bank’s $7.2 trillion balance sheet.

Officials have been unwinding its holdings, including Treasury bonds, since June 2022. It is unclear whether the central bank plans to maintain its sizable post-COVID-19 pandemic balance sheet for the foreseeable future.

Powell told reporters this spring that the Fed’s balance sheet tapering efforts could come to a close soon.

In June, policymakers announced that they would lower the cap for how much Treasurys can mature without being reinvested to $25 billion per month from $60 billion.

A chorus of Fed officials, including Lorie Logan, president of the Federal Reserve Bank of Dallas, have said that slowing the amount of tapering could allow the central bank to continue its balance sheet runoff without disrupting financial markets.

But market watchers say that it is not the size of the Fed’s investment portfolio but rather its composition.

“If the economy continues to expand strongly and inflation remains sticky, we see a growing chance that future tightening discussions could involve altering the composition of balance sheet holdings,” BlackRock economists Tom Becker and Simon Wan said in a research note. “Though financial markets have largely ignored the possibility of a more active approach to shrinking or recasting the balance sheet, we view this as an underappreciated risk, particularly after the U.S. election.”

This, they warn, would pose downside risks for the U.S. dollar and long-term government bond prices.

That said, it is unlikely that the Fed will lower its balance sheet to where it was a decade ago, according to Rob Haworth, senior investment strategy director for U.S. Bank Wealth Management.

“It seems unlikely the Fed will drop its balance sheet back to the $4 trillion level, as it stood in 2015–16, but given the extent the economy has grown since then, a larger Fed balance sheet may be justified,” Haworth said in a note earlier this month.

Market Reaction

The financial markets were little changed following the release of the Fed minutes, with the leading benchmark indexes up by as much as 0.47 percent.

U.S. Treasury yields maintained their sea of red ink. The benchmark 10-year yield slumped below 3.77 percent. The two- and 30-year yields dropped to 3.9 percent and 4.04 percent, respectively.

The U.S. Dollar Index, a metric of the greenback against a basket of currencies, extended its losses midweek, falling to 101. The index erased its year-to-date gain and is now down by about 0.3 percent.

Connecting the Dots:

Keith T. Anderson was a co-founder for BlackRock, Inc. and a chief investment officer for the Soros Fund Management.

George Soros is the founder of the Soros Fund Management and the founder & chairman for the Open Society Foundations.

Open Society Foundations was a funder for the Atlantic Council of the United States (think tank).

Timothy D. Adams is a director at the Atlantic Council of the United States (think tank) and was an undersecretary for the U.S. Department of the Treasury.

David D. Aufhauser is a director at the Atlantic Council of the United States (think tank) and was a general counsel for the U.S. Department of the Treasury.

James A. Baker III is an honorary director at the Atlantic Council of the United States (think tank) and was a secretary for the U.S. Department of the Treasury.

Kenneth W. Dam is a lifetime director for the Atlantic Council of the United States (think tank) and was a deputy secretary for the U.S. Department of the Treasury.

Stuart E. Eizenstat is a director at the Atlantic Council of the United States (think tank) and was a deputy secretary for the U.S. Department of the Treasury.

Robert M. Kimmitt is a director at the Atlantic Council of the United States (think tank) and was a deputy secretary for the U.S. Department of the Treasury.

George P. Shultz is an honorary director at the Atlantic Council of the United States (think tank) and was a secretary for the U.S. Department of the Treasury.

Herbert M. Allison Jr. was a director at the Atlantic Council of the United States (think tank) and an assistant secretary at the U.S. Department of the Treasury.

Teresa M. Ressel was a director at the Atlantic Council of the United States (think tank) and an assistant secretary at the U.S. Department of the Treasury.

Timothy F. Geithner was a secretary for the U.S. Department of the Treasury, an overseer at the International Rescue Committee and is a director at the International Rescue Committee.

Indra K. Nooyi is an overseer at the International Rescue Committee and was a director at the Federal Reserve Bank of New York.

Foundation to Promote Open Society was a funder for the International Rescue Committee.

George Soros was the chairman for the Foundation to Promote Open Society and is the founder of the Soros Fund Management.

Keith T. Anderson was a chief investment officer for the Soros Fund Management and a co-founder for BlackRock, Inc.

Thomas E. Donilon is the chairman for Blackrock, married to Catherine Russell (Jill Bidens Chief of Staff) and was a trustee at the Brookings Institution (think tank).

Foundation to Promote Open Society was a funder for the Brookings Institution (think tank).

George Soros was the chairman for the Foundation to Promote Open Society.

Karen Dynan was a VP for the Brookings Institution (think tank), an assistant secretary for the U.S. Department of the Treasury and a senior adviser for the Federal Reserve Board.

Alice M. Rivlin is a senior fellow at the Brookings Institution (think tank) and was a vice chair for the Federal Reserve Board.

Ben S. Bernanke is a distinguished fellow at the Brookings Institution (think tank) and was a chairman for the Federal Reserve Board.

Douglas W. Elmendorf was a senior fellow at the Brookings Institution (think tank) and an assistant director, Research and Statistics for the Federal Reserve Board.

Donald L. Kohn is a senior fellow at the Brookings Institution (think tank), was a vice chairman for the Federal Reserve Board and a member of the Federal Open Market Committee (FOMC).

John C. Whitehead is an honorary trustee at the Brookings Institution (think tank) and was the chairman for the Federal Reserve Bank of New York.

Glenn H. Hutchins is a trustee at the Brookings Institution (think tank) and a director at the Federal Reserve Bank of New York.

Richard C. Blum is an honorary trustee at the Brookings Institution (think tank), married to Senator Dianne Feinstein and an Economic Advisory Council member for the Federal Reserve Bank of San Francisco.

Louis W. Cabot is an honorary trustee at the Brookings Institution (think tank) and was a director at the Federal Reserve Bank of Boston.

Susan M. Collins is a nonresident senior fellow at the Brookings Institution (think tank) and a director, Detroit branch for the Federal Reserve Bank of Chicago.

Paul A. Volcker was the chairman for the Federal Reserve Board, is the chairman emeritus for the Group of Thirty and a member of the Bretton Woods Committee.

Timothy F. Geithner was a member of the Group of Thirty, is an overseer, director for the International Rescue Committee and a secretary for the U.S. Department of the Treasury.

ONE Campaign is a partner with the International Rescue Committee.

Stanley Fischer was a member of the Group of Thirty, is a member of the Bretton Woods Committee, a member of the Federal Open Market Committee (FOMC) and the vice chairman for the Federal Reserve Board.

Lawrence H. Summers is a member of the Group of Thirty, a member of the Bretton Woods Committee, a director at the ONE Campaign and was a trustee at the Brookings Institution (think tank),

ONE Campaign is a partner with the International Rescue Committee.

Foundation to Promote Open Society was a funder for the International Rescue Committee and the Brookings Institution (think tank).

George Soros was the chairman for the Foundation to Promote Open Society, is a member of the Bretton Woods Committee and the founder of the Soros Fund Management.

Keith T. Anderson was a chief investment officer for the Soros Fund Management and a co-founder for BlackRock, Inc.

Thomas E. Donilon is the chairman for Blackrock, married to Catherine Russell (Jill Bidens Chief of Staff) and was a trustee at the Brookings Institution (think tank).

David H. Romer was a senior fellow at the Brookings Institution (think tank), a junior staff economist for the Council of Economic Advisers and is a professor at the University of California, Berkeley.

Janet L. Yellen was the chairman for the Council of Economic Advisers, a director at the Pacific Council on International Policy, is the chair for the Federal Open Market Committee (FOMC), the chair for the Federal Reserve Board, a professor emeritus for the University of California, Berkeley and married to George A. Akerlof.

Condoleezza Rice was a director at the Pacific Council on International Policy, a director at the ONE Campaign and is an overseer at the International Rescue Committee.

ONE Campaign is a partner with the International Rescue Committee.

Timothy F. Geithner is an overseer, director for the International Rescue Committee and a secretary for the U.S. Department of the Treasury.

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ONE Campaign is a partner with the International Rescue Committee.

Jay Mazur is an overseer at the International Rescue Committee and was a director at the Roosevelt Institute.

Jonathan Soros is a senior fellow at the Roosevelt Institute and George Soros’s son.

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Joseph E. Stiglitz is the chief economist & senior fellow for the Roosevelt Institute, a director at the Climate Reality Project, a chairman for the Council of Economic Advisers and shared the 2001 Nobel Prize in economics with George A. Akerlof.

George A. Akerlof shared the 2001 Nobel Prize in economics with Joseph E. Stiglitz.is a professor at the University of California, Berkeley and married to Janet L. Yellen.

Michael Lewis is a visiting fellow at the University of California, Berkeley and a columnist for Bloomberg News.

Bloomberg News is a division of Bloomberg LP.

Michael R. Bloomberg is the founder of Bloomberg LP and was an advocate for the ONE Campaign.

ONE Campaign is a partner with the International Rescue Committee.

Timothy F. Geithner is an overseer, director for the International Rescue Committee and a secretary for the U.S. Department of the Treasury.

Foundation to Promote Open Society was a funder for the International Rescue Committee.

George Soros was the chairman for the Foundation to Promote Open Society.

Condoleezza Rice was a director at the ONE Campaign, is an overseer at the International Rescue Committee and a director at the Pacific Council on International Policy.

Janet L. Yellen was a director at the Pacific Council on International Policy, is the chairman for the Council of Economic Advisers, the chair for the Federal Open Market Committee (FOMC), the chair for the Federal Reserve Board, a professor emeritus for the University of California, Berkeley, and married to George A. Akerlof.

David H. Romer is a professor at the University of California, Berkeley, a junior staff economist for the Council of Economic Advisers and was a senior fellow at the Brookings Institution (think tank).

Foundation to Promote Open Society was a funder for the Brookings Institution (think tank).