Federal Reserve officials last month showed a strong inclination towards an interest rate cut during their September policy meeting, with several even advocating for an immediate reduction in borrowing costs.

Minutes from the Fed’s late July open market committee meeting, where borrowing costs remained between 5.25% and 5.5%, revealed that the “vast majority” believed it “would likely be appropriate to ease policy at the next meeting” if economic data met expectations.

The minutes also indicated that “many” Fed officials considered current rates to be restrictive, with “a few participants” noting that maintaining the status quo amid cooling inflationary pressures would further drag on economic activity.

While all Fed officials agreed to keep rates steady in July, “several” policymakers suggested that progress in reducing inflation amidst rising joblessness “had provided a plausible case for reducing the target range by 25 basis points at this meeting or that they could have supported such a decision.”

The argument for cutting rates rests on the need to ease price pressures and return inflation to the central bank’s 2% target, alongside increased concerns about the labor market following data showing a rising unemployment rate. The Fed’s concerns were amplified by the Labor Department’s revised estimate showing 818,000 fewer payroll jobs in March than previously reported. Analysts at Goldman Sachs expect a reduction of about 600,000 in payroll estimates over the 12 months to April.

The rapid increase in the jobless rate, which has risen from 3.4% early last year to 4.3% recently, has added urgency to the discussion over rate cuts, with some analysts suggesting a half-percentage-point reduction should be considered next month.

The minutes noted that officials see the job market as largely recovered to pre-pandemic levels, describing it as “strong but not overheated.” Financial markets anticipate that the Fed’s September meeting will begin a series of rate reductions, potentially easing rates by a full percentage point by year’s end.

Traders are pricing in a 33% likelihood of a 50 basis point cut next month and a 67.5% chance of a 25 basis point reduction, according to CME Group’s FedWatch tool.

“A deteriorating labor market will allow the Fed to highlight both sides of the dual mandate and investors should expect the Fed to prepare markets for a cut at the September meeting,” stated Jeffrey Roach, chief economist at LPL Financial.

“A weaker-than-expected job market could pave the way for the Fed to cut by a half percentage point in September,” Roach added.

Tom di Galoma, managing director at Curvature Securities, remarked, “My general feeling is that the Fed probably wants to make a 50 basis point cut in September, rather than 25, just to get the process going, followed by another 25 in November and 25 in December.”

The revised figures suggest the US job market has been softening more than expected in a crucial election year, leading to speculation about significant interest rate cuts from the Fed this year.

An interest rate cut in September, less than two months before the presidential election, could bring political scrutiny to the Fed, which strives to remain apolitical in election years.

Donald Trump, the former president, has argued against a pre-election rate cut. However, Fed Chairman Jerome Powell has reiterated that the central bank’s decisions are made based solely on economic data, irrespective of the political calendar.

Wall Street managed to maintain gains following the updated jobs data and the Fed minutes. By the close on Wednesday, the S&P 500 was up 0.42% at 5,620.85, while the Nasdaq increased 0.57% to 17,918.99. The dollar weakened against several major currencies, and the ten-year US Treasury yield dipped to 3.791%, after earlier reaching a two-week low of 3.782%. Spot gold prices eased 0.1% to $2,508.40 an ounce, following a record high of $2,511.30 an ounce the previous day, reflecting a 3.4% rise since early August.

Concerns over US economic growth overshadowed worries about Middle East conflicts disrupting supplies, leading to a nearly 2% fall in Brent crude to $75.77, marking a monthly decline of almost 4.5%.

“The market is transitioning from anticipating a stronger economy to fearing a potential hard landing, which is why oil prices are cautious about moving higher,” said Phil Flynn, an analyst with Price Futures Group.

Markets await further updates from Powell, who is set to speak at the Kansas City Fed’s annual research conference in Jackson Hole, Wyoming, on Friday.