On Wednesday (July 3rd) Eastern Time, the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) monetary policy meeting held on June 11th and 12th. Federal Reserve officials reiterated once again that they need more data to confirm the cooling of inflation before they can confidently start cutting interest rates.

The minutes pointed out that the growth of economic activity seems to be gradually cooling down, and most participants expressed that they believe the current policy stance is restrictive, which may further curb the economy and inflation.

In terms of inflation, Federal Reserve officials believe that the progress in reducing inflation this year is slower than they expected in December last year, and they emphasized that it is not appropriate to cut interest rates unless they are confident that inflation can continue to fall to the Federal Reserve's target after receiving more information. Even some participants indicated that due to the continued strength of the economy, the long-term equilibrium interest rate previously estimated by the Federal Reserve may be "too low." In this case, several participants pointed out that if inflation continues to be high or further rises, it may be necessary to raise interest rates.

That being said, there is still disagreement among Federal Reserve officials about the current level of restrictive policy. According to the minutes, the vast majority of participants recognize that the economy is cooling down and that the policy stance is restrictive, which may further suppress the economy and inflation. However, some also pointed out that the continued strength of the economy, as well as other factors, may mean that the long-term neutral interest rate is higher than previously assessed, and in this case, the restrictiveness of monetary policy and overall financial conditions may not be as strict as it appears.

Since March 2022, the Federal Reserve has raised the benchmark interest rate 11 times in a row. Currently, the Federal Reserve is keeping the interest rate level at a high of 5.2%. Under high interest rate pressure, both the labor and prices in the United States have cooled down. For this reason, the Federal Reserve is also prepared for an "emergency plan" - many participants pointed out that monetary policy should always be ready to deal with unexpected economic weakness. Several participants especially emphasized that as the labor market normalizes, the further weakened demand now has a greater impact on unemployment than in the recent past.

Regarding the discussion on how to handle monetary policy, there is a clear division within the Federal Reserve. "Some participants believe that the progress in reducing inflation this year is slower than expected in December last year, and some participants emphasized the need for patience before cutting interest rates. Some participants said that if inflation comes back, further interest rate hikes may be needed."

This week, at the European Central Bank Forum held in Sintra, Portugal, Federal Reserve Chairman Powell refused to disclose any time frame for interest rate cuts, but he admitted that the balance of monetary policy has become the top issue for Federal Reserve officials to consider. According to the public schedule, the next meeting of the Federal Reserve will be held on July 30th, and the latest federal funds futures show that the market expects the Federal Reserve to cut interest rates in September and December.

At present, according to the CME "FedWatch": The probability of the Federal Reserve keeping the interest rate unchanged in August is 91.7%, and the probability of cutting interest rates by 25 basis points is 8.3%. The probability of the Federal Reserve keeping the interest rate unchanged in September is 31.2%, the cumulative probability of cutting interest rates by 25 basis points is 63.4%, and the cumulative probability of cutting interest rates by 50 basis points is 5.5%.