Minutes from June FOMC meeting highlight continued concerns about the slow progress in reducing inflation this year. Participants emphasized that it would not be appropriate to lower interest rates until there is “greater confidence” that inflation is moving sustainably toward 2% target.

Participants discussed risk-management considerations, noting that with “labor market tightness having eased” and “inflation having declined” over the past year, the risks to achieving employment and inflation goals “had moved toward better balance”. They believe the current monetary policy is “well-positioned” to address existing risks and uncertainties.

The “vast majority” of participants observed that economic activity appears to be gradually cooling, and most viewed the current policy stance as “restrictive”. However, “some participants” noted uncertainty about the “degree of restrictiveness”. They suggested that the continued strength of the economy and other factors might indicate that the longer-run equilibrium interest rate is higher than previously assessed, which would mean that the stance of monetary policy and overall financial conditions might be “less restrictive than they might appear”. A “couple” of participants noted that the longer-run equilibrium interest rate is a better guide for long-term federal funds rate movements than for assessing current policy restrictiveness.

“Several participants” observed that if inflation remains elevated or increases, the target range for the federal funds rate “might need to be raised”. On the other hand, “some members” specifically emphasized that with labor market normalizing, any further weakening in demand could now lead to a larger increase in unemployment compared to the recent past.

Full FOMC minutes here.

Chicago Fed President Austan Goolsbee has suggested that Fed should consider cutting interest rates if inflation continues its downward trajectory towards the 2% target. He emphasized the importance of adjusting monetary policy to align with changing inflation dynamics.

Goolsbee explained that holding the current rate as inflation decreases effectively tightens monetary conditions. He noted, “If you sit with the rate somewhere while inflation goes down, you’re tightening. The reason that you would want to tighten is if you think that you’re not on a path to 2%.”

Furthermore, Goolsbee pointed out the importance of balancing inflation control with overall economic stability. He noted, “If employment starts falling apart or if the economy begins to weaken, which you’ve seen some warning signs, you’ve got to balance that off with how much progress you’re making on the price front.” While acknowledging that the unemployment rate remains relatively low, he also highlighted its recent upward trend, indicating potential economic softening.