Fed poised for rate cut as inflation victory nears

Buried deep in the minutes from the Federal Reserve's July 30-31 meeting, the central bank essentially declared victory in its battle against inflation.

The Federal Open Market Committee — the Fed's rate-making body — is pleased with the falling inflation rates and easing tightness in the US jobs market.

And they didn't see much in the orbit that might blow up their confidence.

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

In fact, minutes of the meeting, released Wednesday, show that some members thought the data they were seeing created "a plausible case for reducing the target range 25 basis points at this meeting."

But the FOMC blinked. But briefly.

Minutes make clear that the Committee voters saw the incoming data as strengthening their belief that inflation was moving toward the Committee's objective, and very few did not indicate that, if the data continued to come in about in line with expectations, it would likely be appropriate to ease policy at the next meeting.

So, there you have it: Short of economic disaster in the next few weeks, a rate cut is coming, probably at the next FOMC meeting on Sept. 17-18 and probably a quarter of a percentage point. That would bring the Fed's key interest rate — the federal funds rate — down from 5.25 per cent-to-5.5 per cent to 5 per cent-to-5.25 per cent.

Fed Chairman Jerome Powell may well talk about the July meeting when he speaks Friday at a symposium of central bankers in Jackson Hole, Wyo.