Fed faces rate cut as victory over inflation nears

Buried deep in the minutes of the US Federal Reserve's meeting of July 30 and 31, the central bank essentially declared victory in the fight against inflation.

The Federal Open Market Committee – the Fed’s interest rate-setting body – is pleased with the falling inflation rates and the easing tensions in the US labor market.

And they haven't seen much in orbit that could have shaken their confidence.

In other words, there was far less need for the Fed to keep interest rates high.

In fact, minutes of the meeting released on Wednesday show that some members felt that the data presented to them “provided a plausible argument for a 25 basis point reduction in the target range at this meeting.”

But the FOMC hesitated, albeit briefly.

It is clear from the minutes that committee voters viewed the new data as confirmation of their belief that inflation was moving toward the committee's goal. And very few suggested that if the data continued to be roughly in line with expectations, monetary easing at the next meeting would likely be appropriate.

So there you have it: Unless there is an economic catastrophe in the next few weeks, there will likely be a rate cut at the next FOMC meeting on September 17-18, and probably by a quarter of a percentage point. That would lower the Fed's benchmark interest rate – the federal funds rate – from 5.25-5.5 percent to 5-5.25 percent.

Fed Chairman Jerome Powell may speak about the July meeting at a central bankers' symposium in Jackson Hole, Wyoming, on Friday.