All participants at the Federal Reserve’s May 3-4 policy meeting supported half a percentage-point rate hike to tackle inflation, agreeing that they pose a major threat to the economy’s performance and were considered by the US central bank. Without action there was a risk of running high. The minutes of the session were shown on Wednesday.
This month’s 50-basis-point increase in the Fed’s benchmark overnight interest rate was the first of that size in more than 20 years, and “a majority of participants” decided that a further hike of that magnitude at the Fed’s policy meetings “was appropriate.” likely”. By the minute in June and July.
“All participants agreed that the US economy was very strong, the labor market was extremely tight, and inflation was very high,” the Minutes said, noting ongoing global supply problems were “skewed upside down” with the risk of even sharper inflation. happened, Ukraine war, and continued coronavirus Lockdown in China.
In that context, “the participants agreed that the (federal open market) committee should increasingly shift the monetary policy stance to a neutral currency … They also noted that a restrictive stance of policy may well may be appropriate.”
“Several participants” decided the rate hike now in the books “will be a well-positioned committee later this year to assess the impacts of the policymaking.”
US stocks rose after the release of the report before reversing. Futures traders eased their rate-hike bets but are still pricing solid in half-percentage-point increases in June and July, with quarter-percentage-point increases in the remaining three sittings in 2022.
Bob Miller, head of US fixed income for investment giant BlackRock, said the minutes indicated that July would be an important pivot point for the Fed.
Considering strongly the two-and-a-half percentage-point increase, “the policy path after July will depend on the trajectory of inflation and progress toward correcting imbalances in the labor market,” he wrote after the minutes’ release. “If those factors improve, the Fed gets some breathing room” to move into lower rate hikes, but may otherwise be forced to lean more on the economy.
Minutes showed the Fed grappling with navigating the economy toward low inflation in the face of a recession or raising the unemployment rate significantly higher – a task “many participants” at this month’s meeting said would prove challenging in the current environment.
By the Fed’s preferred measure, inflation is running more than three times the central bank’s 2 percent target.
However, “a number” of Fed participants said that the data had begun to indicate that inflation “may not be getting any worse.”
But they also agreed that “it is too early to believe that inflation was peaking.”
wide range of positions
The economy remained strong, the minutes noted, with households in such good shape that Fed officials said they may find it difficult to stop spending and relieve price pressure.
Supply constraints on businesses were “still significant,” Minutes noted, hiring remained difficult, and “the ability of firms to meet demand remained limited,” a recipe for ever-increasing prices.
With little certainty about when those conditions might ease, officials have begun to prepare a detailed account of what might happen after the upcoming rate hike, from an outright stagnation in borrowing costs. Calling for an aggressive string of ranged half-cents. Points increase in September, November and December meetings. read more
Inflation data has yet to show a solid turn from levels that have puzzled Fed officials and drawn comparisons with the inflation shocks of the 1970s and early 1980s.
Some analysts, meanwhile, have raised their risks of a recession, and investors in contracts tied to the federal funds rate have of late scaled back their projections of how higher interest rates will move.
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