Fed minutes show officials not ready to cut rates

At their most recent monetary policy meeting, Federal Reserve (Fed) officials acknowledged that the US economy appeared to be slowing and that “price pressures were diminishing”, but still adopted a wait-and-see approach before cutting interest rates, according to the minutes of the June 11-12 meeting of the Fed’s interest rate setting committee.

A number of participants remarked that the Fed’s monetary policy should stand ready to respond to unexpected economic weakness, the minutes note. They also showed that a “vast majority” of policymakers saw economic growth “gradually cooling” and that the current policy is “restrictive”, a key term that shows officials are worried that monetary policy is too tight and could cause undue economic harm in the Fed’s fight to tame inflation.

Meanwhile, eurozone private sector business activity grew at the end of the second quarter but lost momentum due to the softening demand and weaker sales, final survey results showed on Wednesday.

The seasonally adjusted Hamburg Commercial Bank (HCOB) Eurozone Composite PMI Output Index – which reflects conditions in both the services and manufacturing sectors – came in at 50.9, a slight decline in the rate of expansion compared to May’s 52.2 but marginally better than the initial estimates of 50.8. The June reading marks the fourth consecutive month above the 50.0 level that separates expansion from contraction.

“Growth in the eurozone can be attributed fully to the service sector. While the manufacturing sector weakened considerably in June, activity growth in the services sector continued to be nearly as robust as the month before,” HCOB chief economist Cyrus de la Rubia noted.

Finally, mortgage approvals in the UK fell in May as persistently high mortgage rates continued to discourage real estate purchases, according to data released on Monday by the Bank of England (BoE).

Mortgage approvals, a predictor of future borrowing, decreased to 60,000 in May from 60,800 in April. Economists had expected borrowing to fall to 59,900.

At the same time, the effective interest, which is the actual interest paid on newly drawn mortgages, rose by five basis points to 4.79 per cent in May. With the view that the BoE will cut interest rates at the next policy meeting in August, this lends some support to the assessment that the economic recovery may be a bit stronger than the consensus, said Ashley Webb, economist at Capital Economics.

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