“The limited new information within the release failed to inspire a dramatic price reaction,” analysts at BMO Capital Markets wrote in a note to clients following the release. “There was nothing here to derail our assumption that September will be another ‘skip’, although another hike in November or December is firmly on the table.”
Fed officials are facing a complicated economic picture as they try to assess whether they have sufficiently adjusted policy to return inflation to 2 percent over time. On one hand, the job market shows signs of cooling and the rate moves that the Fed has already made are still slowly trickling out to restrain the economy. Yet consumer spending remains surprisingly strong, unemployment is very low, and wage growth is solid — momentum that could give companies the wherewithal to charge their customers more.
Officials noted that there was a “high degree of uncertainty” about how much the moves they have already made will continue to temper demand. Financial conditions are tight, meaning it is tough and expensive to borrow, which officials thought could weigh on consumption. At the same time, the housing market seems to be stabilizing, and some officials suggested that “the housing sector’s response to monetary policy restraint may have peaked.”
The resilience of the economy has prompted the Fed’s staff economists — an influential bunch of analysts whose forecasts inform policymakers — to revisit their previous expectation that the economy would fall into a mild recession late this year.
“Indicators of spending and real activity had come in stronger than anticipated; as a result, the staff no longer judged that the economy would enter a mild recession toward the end of the year,” the minutes said. They did still expect a “small increase in the unemployment rate relative to its current level” in 2024 and 2025.
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