A likely rate cut in September is indicated by the Fed minutes.

• The majority of participants at the July 30-31 meeting "noticed that, if the data continued to come in as expected, it would likely be suitable to loosen policy at the next meeting," the summary stated.
• Since the emergency easing in the early days of the Covid crisis, markets have not fully priced in a September cut, which would be the first since then.

Federal Reserve officials at their July meeting came closer to a long-awaited interest rate reduction, but stopped short of making a decision, indicating that a September cut had become increasingly probable, according to minutes released Wednesday.

The majority of participants at the July 30-31 meeting "noticed that, if the data continued to come in as expected, it would likely be suitable to loosen policy at the next meeting," the summary stated.

Since the emergency easing in the early days of the Covid crisis, markets have not fully priced in a September cut, which would be the first since then.

Although all members of the Federal Open Market Committee agreed to keep benchmark rates unchanged, some officials expressed a preference to begin easing at the July meeting instead of waiting until September.

The recent progress on inflation and increases in the unemployment rate provided a plausible case for reducing the target range 25 basis points at this meeting, according to several meeting participants.

A 25 basis point reduction is equivalent to a quarter percentage point.

"Several" is a small number in the language used by the Fed in its minutes, which does not reveal the names of policymakers or their specific opinions.

Officials are confident about the direction of inflation and are prepared to ease policy if the data remain cooperative.

While inflation markers indicated that price pressures were easing, some members expressed concerns about the labor market and the difficulties faced by households, particularly those with lower incomes, in the current climate.

"The minutes indicated that participants believed that recent data had boosted their confidence that inflation was moving steadily towards 2 percent. Nearly all participants noted that the factors that had caused recent deflation would likely continue to exert downward pressure on inflation in the near future."

Officials on the labor market have pointed out that payroll gains may have been overstated.

The Bureau of Labor Statistics reported a preliminary revision of the nonfarm payroll numbers from April 2023 through March 2024, stating that gains may have been overstated by more than 800,000.

"A significant number of participants pointed out that the risks to achieving the employment objective had intensified, while several participants observed that the risks to achieving the inflation objective had decreased."

The committee noted that job gains had slowed down and inflation had decreased, but decided to keep the benchmark funds rate unchanged, which is currently set between 5.25% and 5.5%, the highest in 23 years.

The stock market experienced a surge on the day of the Fed meeting, but subsequently plummeted due to concerns that the central bank was not acting quickly enough to loosen monetary policy.

Unexpectedly, the Labor Department reported a spike in unemployment claims the day after the meeting. Additionally, the manufacturing sector contracted more than expected. The situation worsened when the nonfarm payrolls report for July revealed job creation of only 114,000 and a tick up in the unemployment rate to 4.3%.

Some suggested that the Fed should cut quickly and hold an intermeeting to alleviate concerns about the economy's rapid decline.

Despite initial panic, subsequent data releases showed jobless claims decreasing, inflation indicators easing, and retail sales performing better than expected, alleviating concerns about consumer pressure.

Recent indicators suggest stresses in the labor market, and traders anticipate the Fed to start reducing rates in September.