Federal Reserve officials held off on cutting interest rates at their July meeting, but minutes from that gathering showed that they were clearly poised to lower them at their meeting in September, just weeks before the presidential election.
“The vast majority” of officials thought that “if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” according to notes from the meeting released on Wednesday.
Days after the Fed’s July gathering, a disappointing employment report showed that employers hired more slowly than expected. And in the weeks since, fresh data have showed that inflation continues to cool.
That leaves the Fed primed to cut rates at their next meeting on Sept. 17-18, though just how much they will lower borrowing costs is still an open question. Investors think that a quarter-point reduction is most likely, but they see a half-point cut as a possibility.
While the Fed is independent of politics, that move is likely to draw attention to the central bank. A reduction would come just weeks before November’s presidential election, and at a time when the Fed’s policies — especially its effort to fight inflation and its effect on the housing market through mortgage costs — have become a common topic of conversation on the campaign trail.
The Fed has held interest rates steady at 5.3 percent, the highest level in more than two decades, since July 2023. At that level, interest rates are hefty enough to discourage many families and businesses from borrowing money, which weighs on demand and helps to cool the economy, making it harder for companies to lift prices.
Fed officials have kept rates so high because they want to make sure that inflation is truly and fully coming under control before taking the pressure off. And because the economy and the job market seemed to be holding up well in the face of high borrowing costs — cooling down, but not stalling out — policymakers thought that they had time to be patient.
But now that the job market is beginning to show signs of slowing, officials may find that cutting borrowing costs is more urgent. Central bankers want to wrangle inflation, but they would like to do so without tanking the economy in the process.
Even as of the last Fed meeting, “a majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased,” the minutes showed.
“Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration,” the minutes said.
The Fed faces a politically fraught couple of months as it prepares to begin cutting interest rates — the first time it has done so since the onset of the pandemic in 2020.
Fed officials set policy independently of the White House and are insulated from politics by design, so that they can make decisions that will be good for the country’s economy in the long term, even if those incur temporary pain. But that does not keep politicians from talking about the Fed.
While President Biden mostly avoids talking about what the central bank should do, Donald J. Trump, the former president and Republican presidential candidate, frequently harangues the Fed in speeches and on social media. When he was in office, he often called for low rates, and he has recently implied that it would be political of the Fed to cut rates before the election.
“I think it’s fine for a president to talk. It doesn’t mean that they have to listen,” Mr. Trump told Bloomberg in an interview published this week, when asked about his Fed comments. “A president certainly can be talking about interest rates because I think I have very good instincts.”