U.S. FOMC Meeting Minutes (July 25-26, 2023)

Brett Saldarelli, Economist | 416-542-0072 

Date Published: August 16, 2023

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Fed minutes signal members are open to additional rate hikes

  • The minutes from the July 25-26, 2023 Federal Open Market Committee (FOMC) meeting acknowledge the disinflationary process, but showed that the Fed remains committed to restoring price stability. 
  • On the current state of the economy, the Committee members noted that " economic activity had been expanding at a moderate pace. Job gains had been robust in recent months, and the unemployment rate remained low. Inflation remained elevated. Participants agreed that the U.S. banking system was sound and resilient."
  • On debating the appropriate policy actions for the July meeting, "almost all participants judged it appropriate to raise the target range for the federal funds rate." Participants that supported a pause emphasized the fact that it would better allow the committee to assess changing economic backdrop.
  • When discussing the future path of monetary policy, participants noted "significant upside risks to inflation, which could require further tightening of monetary policy."
  • On deliberations concerning the risks of additional rate hikes, committee members noted "the possibility that the macroeconomic effects of the tightening in financial conditions since the beginning of last year could prove more substantial than anticipated." Additionally, the effect of tighter credit conditions stemming from the recent banking tumult remained uncertain.

Key Implications

  • Today's minutes confirmed that the Fed has kept the door open to additional rate hikes despite decelerating price pressures and signs that labor market conditions are beginning to come into better balance. This progress has seen the "soft landing" narrative become more popular, and has been reflected in financial markets, which expect the Fed to begin easing policy in the first half of 2024.
  • Despite signs of continued resilience, economic activity is expected to slow notably over the second half of the year. The Fed will continue to attentively monitor the incoming data as the full effects of their previous tightening remain uncertain, and the risk of overtightening remains elevated. With the federal funds rate now in restrictive territory, we believe it is likely that the Fed has made its last rate hike, and will now maintain rates in restrictive territory until there is clear evidence that inflation is on a sustainable path to its 2% target.