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WASHINGTON (AP) — Federal Reserve officials welcomed recent signs of slowing inflation at their latest meeting and pointed to data suggesting the job market and broader economy may be cooling.
Both trends, if they continue, could lead the Fed to cut its benchmark interest rate in the coming months from its 23-year peak.
Minutes from the Fed’s June 11-12 policy meeting, released Wednesday, show that policymakers identified several factors that could further slow inflation in the months ahead. Among them is slowing wage growth, which reduces pressure on businesses to raise prices to cover labor costs.
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Policymakers also pointed to anecdotal cases of retail chains and other businesses lowering prices and offering discounts, a sign that customers are increasingly resistant to higher prices.
Officials have expressed concerns that a further slowdown in the labor market could lead to layoffs. So far, the slowdown in labor demand has been mainly reflected in fewer job openings.
Concerns about a possible increase in layoffs suggest the Fed must consider its dual policy goals: price stability and full employment. That’s a change from the previous two years, when the Fed focused solely on taming inflation, which in 2022 hit a four-decade high of 9.1% while the jobs market remained strong.
Fed meeting minutes sometimes provide key insights into policymakers’ thinking, including how their views on interest rates have evolved. Financial markets are eagerly awaiting more clarity on the likely timing of the Fed’s rate cuts. A rate cut by the Fed would likely lead to lower borrowing costs over time for mortgages, auto loans, credit cards, and corporate borrowing, and could also boost stock prices.
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After their June 11-12 meeting, Fed officials issued a statement saying inflation had started to fall back toward their 2% target. But they also downgraded their forecast for rate cuts this year, from three to just one.
At a news conference, Fed Chairman Jerome Powell, however, downplayed the expectation of a single rate cut and said one or two cuts were equally likely. Four of the Fed’s 19 policymakers said they did not envision any rate cuts this year. The other 15 policymakers were almost evenly split between one and two cuts.
On Tuesday, financial markets were encouraged by comments Powell made at a monetary policy conference in Portugal. Powell said the Fed had made “a lot of progress” in bringing inflation back to 2%.
Consumer price increases remained consistently high in the first three months of the year, he noted, but in April and especially May, inflation resumed the steady decline that began in the second half of 2023.
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