Markets showed little reaction to the release of the minutes, with stocks rising modestly to end the day higher and bond yields falling. Fed funds futures showed the probability of a quarter-percentage-point cut at the September meeting falling slightly from Tuesday and the odds of a half-percentage-point reduction edging higher.
Powell largely tipped off the likely outlook after the July policy meeting when he said “if we do get the data that we … hope we get, then a reduction in our policy rate could be on the table at the September meeting”.
The Fed’s concerns about the job market may be underpinned by the Labor Department’s estimate on Wednesday that 818,000 fewer payroll jobs existed in March than previously reported. The change was part of the annual benchmark revision process.
Those revisions may not have caught Fed officials off guard, with the minutes noting “reported payroll gains might be overstated”, which means the economy might not need to add as many new positions each month to keep the jobless rate steady.
The minutes also noted that a “majority” of Fed officials saw risks to the job market as having increased while risks to the inflation mandate had been reduced.
The current level of joblessness is already higher than the 4 per cent level Fed officials pencilled in for this year in their updated economic projections in June, and the 4.2 per cent policymakers projected for the end of next year.
Markets are likely to get an update on Powell’s views on Friday when he speaks at the Kansas City Fed’s annual research conference in Jackson Hole, Wyoming. Several other Fed officials are also likely to weigh in on the outlook while attending the conference.
Another major point for the monetary policy outlook comes in early September with the US Labor Department’s release of the employment report for August.
