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Fed Officials Are Willing To Cut Rates, But Inflation Could Derail Plans

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Officials at the Federal Reserve cut the central bank’s influential interest rate by a quarter of a percentage point last month despite inflation remaining near the top of their list of worries, according to minutes released by the Federal Open Market Committee Wednesday.

The minutes detailed the discussions that led the Fed to cut interest rates for the first time this year. Central bankers face a dilemma as they strive to fulfill their dual mandate of maintaining low inflation and high employment. Inflation remains above the Fed’s target of a 2% annual rate, while job growth has slowed to a crawl.

Federal Reserve officials seem willing to cut rates at their next meeting, if current economic conditions persist, minutes showed Wednesday.

Sophie Park / Bloomberg via Getty Images

Fed policymakers have been wrestling with their options: cut the federal funds rate to boost job creation, or keep it higher for longer to wrestle down inflation. The Fed’s key interest rate influences the economy because it dictates borrowing costs on all kinds of short-term loans.

While markets widely expect the Fed to make two more cuts at its remaining meetings this year, Fed officials are keeping a close eye on inflation, suggesting higher-than-expected price increases in the coming months could derail those expectations.

“Two more rate cuts aren’t a done deal because policymakers aren’t letting go of their inflation mandate,” David Russell, global head of market strategy at TradeStation, wrote in a commentary.

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–Diccon Hyatt