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On August 21, local time, the Federal Reserve released the minutes of the Federal Open Market Committee (FOMC) meeting from July 30 to 31. The minutes showed that the Federal Reserve decided to slow down the pace of interest rate hikes in July and maintain the target range of the federal funds rate between 5.25% and 5.50%.

But the minutes also made it clear that the U.S.Fed officials last month strongly favored cutting interest rates at their September policy meeting, with several even willing to do so immediately.

Three of the key points suggest that the Federal Reserve’s interest rate cut in September is a foregone conclusion.

One, a “vast majority” of policymakers observed that if data continued to perform as expected, then easing policy at the next meeting would likely be appropriate.

Second, upside risks to the inflation outlook were seen as having diminished, while downside risks to employment were seen as having increased. Participants saw that the risks to achieving inflation and employment goals continued to move toward a better balance, and the risk that continued easing of interest rates could transition to a more severe deterioration had increased.

Third, many Fed officials believe that interest rates are restrictive, and some participants believe that keeping interest rates unchanged while inflationary pressures continue to cool means that monetary policy will increase the drag on economic activity.

Wall Street traders have long considered it a foregone conclusion that the Federal Reserve will announce its first interest rate cut in four years at its mid-September meeting, based on futures prices. A reduction in the Fed’s benchmark rate would eventually lead to lower rates on auto loans, mortgages and other forms of consumer borrowing, and could boost stock prices.

Fed minutes sometimes reveal key details behind the scenes of policymakers, particularly how their views on interest rates have evolved. Fed Chairman Jerome Powell is expected to provide further guidance on the Fed’s next steps in a highly anticipated speech Friday morning at the annual central bankers’ symposium in Jackson Hole, Wyoming.

A rate cut in September, less than two months before the presidential election, could bring some unwelcome political pressure to the Fed, which has been hoping to avoid getting caught up in election-year politics. Former U.S. President Donald Trump has said the Fed shouldn’t cut rates so close to an election. However, Powell has repeatedly stressed that the central bank will make interest rate decisions based solely on economic data, without taking into account the political agenda.

Several Democratic senators, led by Elizabeth Warren of Massachusetts, had urged Powell to cut rates at the July Fed meeting, arguing that delaying a rate cut would itself be a political act if inflation data showed it was justified.

According to the Federal Reserve’s preferred inflation measure, inflation has fallen from a peak of 7.1% in 2022 to 2.5% now.In recent interviews, Atlanta Fed President Raphael Bostic and Chicago Fed President Ben Goolsbee pointed to rising real interest rates as inflation slows, a trend that supports rate cuts in the near term. Bostic said: "We may need to shift our policy stance sooner than I previously thought."

Most analysts believe Powell will show in his speech on Friday that the Fed is confident that inflation is returning to its 2% target and may even hint at how many rate cuts there will be this year. At a press conference after last month's Fed meeting, Powell said anything from "zero to a few rate cuts" could be possible by the end of the year.

Two days after the Fed’s meeting late last month, the U.S. government released its July jobs report, showing job growth far below expectations and the unemployment rate rising for a fourth straight month to a still-low 4.3%. The weak jobs data sparked two days of steep declines in stocks as traders suddenly worried a recession could be on the horizon.