Majority of officials preferred a rate cut in September if inflation continued to decline

In a recent meeting held by the Federal Reserve, most officials agreed that they would likely cut the benchmark interest rate at their next meeting in September if inflation continued to cool. This news has sparked anticipation and speculation among Wall Street traders who are already pricing in the possibility of the first interest rate cut in four years.

The minutes of the Fed’s July meeting revealed that the “vast majority” of policymakers are inclined to ease policy at the next meeting, as long as economic data continues to align with expectations. This decision could lead to lower rates for consumer borrowing, such as auto loans and mortgages, and could potentially boost stock prices.

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Chair Jerome Powell is expected to provide further guidance on the Fed’s next steps during his highly anticipated speech at the annual symposium of central bankers in Jackson Hole, Wyoming. With inflation currently at 2.5%, down from a peak of 7.1% in 2022, the case for a rate cut is bolstered by the rise in inflation-adjusted interest rates, as noted by Fed officials Raphael Bostic and Austan Goolsbee.

Despite concerns about potential political backlash, especially in light of the upcoming presidential election, the Fed remains focused on making rate decisions based on economic data rather than political considerations. Democratic senators, including Elizabeth Warren, have urged for a rate cut in light of the inflation data, arguing that delaying a cut when warranted could itself be a political act.

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As Chair Powell prepares to deliver his speech, analysts are eager to hear whether the Fed is confident in inflation returning to its 2% target and how many rate cuts could be expected this year. Last month, Powell had indicated that a range of policy moves were possible, from zero cuts to several cuts, by the end of the year.

Following the release of a weaker-than-expected jobs report for July, concerns about a looming recession surfaced, causing a temporary drop in the stock market. However, recent data showing healthy growth in retail sales and a decrease in unemployment benefit claims suggest that consumer spending remains strong and businesses are retaining their employees.

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