FOMC minutes: Not appropriate to lower interest rates yet

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.