Fed Minutes: Officials Uncertain More Rate Hikes

Federal Reserve officials, in minutes from their May 2-3 meeting, pointed to significant uncertainty over the path forward for monetary policy. Central bank officials acknowledged the need to keep their options open as they debated whether to continue raising interest rates or hold them steady in the coming months.

Although officials were concerned about inflation, they increasingly felt that the impact of tight financial conditions and a slowdown in monetary policy action meant that their tightening campaign was almost over.

“Participants generally expressed uncertainty about how much more policy tightening would be appropriate,” the minutes said.

The new insight, released Wednesday afternoon, underscored just how seriously central bank officials were considering changing course and keeping interest rates steady when they met earlier this month. Although the minutes are released several weeks after each meeting, they are closely watched for clues about how central bankers are feeling and where monetary policy is headed.

The May minutes are particularly valuable as the path forward for monetary policy remains unclear. Fed officials continue to debate whether to raise interest rates or keep them steady when the next policy committee meets in mid-June.

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The latest release underscores the extent of the debate during the May meeting. Some officials felt that additional rate hikes might be warranted on the expected path for inflation, the minutes show. Many felt no further tightening was necessary, the minutes said. Officials generally agreed on the need to closely monitor incoming economic data ahead of the next policy meeting scheduled for June 13-14.

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Minutes of the May meeting showed the central bank’s staff maintaining their view that a mild recession is likely later this year, citing the impact of an expected further tightening on bank lending conditions along with already tight financial conditions. The Fed’s staff first released their recession forecast during their March meeting immediately after the Silicon Valley Bank and Signature Bank failures. They see a slowdown followed by a “moderately brisk” recovery.

The staff forecast did not prevent officials from voting unanimously in favor of another quarter-point rate hike in May, bringing the federal-funds rate to a range of 5-5.25%. Central bank officials appeared to take a somewhat less optimistic view of the economic outlook, saying that while tightening credit conditions would weigh on economic activity, “the magnitude of these effects remained uncertain.”

Along with the S&P 500, stocks fell after the release

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It was down 0.9% by 2:30 p.m. Eastern.

This is breaking news. Check back for more updates Read a preview of the minutes below.

Federal Reserve officials moved unanimously to raise interest rates at the central bank’s policy meeting earlier this month, but there was significant debate over whether suspending tightening efforts would be the most prudent move.

Now, minutes from the Fed’s May 2-3 meeting could provide clues as to how serious officials are about keeping interest rates steady and whether members of the Federal Open Market Committee are speaking out in favor of a pause.

The latest Fed minutes, to be released Wednesday afternoon, will shed new light on the internal deliberations that took place during the most recent FOMC meeting, when officials voted to raise interest rates by a quarter point to a range of 5-5.25. % Although they are released several weeks after each meeting, Fed minutes are always closely watched for clues about how central bank officials feel and where monetary policy is headed in the next few weeks or months.

Before the May meeting, some of the group’s most dovish members leaned against the idea of ​​further policy tightening, arguing that the fallout from a string of bank failures in the spring could have a similar effect on financial conditions. Increases fares. This, in turn, means the central bank may not have to raise rates as aggressively as it once suggested.

But Fed Chairman Jerome Powell played down those concerns when he announced the quarter-point increase, insisting the banking system is sound and underscoring his view that the economy can avoid recession.

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At the time, the Fed hinted that a pause might be on the way, though Powell made it clear in his later press conference that the central bank would continue to monitor the data and not hesitate to tighten rates further if necessary. The minutes will be scrutinized closely for clues as to what specifically the central bank is looking for in economic data moving forward as the numbers decide when to end the crisis.

Of particular interest will be the central bank staff’s economic outlook in the minutes. Minutes from the March 21-22 meeting indicated that in the immediate aftermath of the failure of Silicon Valley and Signature Banks, Fed staff predicted a mild recession later this year.

When asked during his May post-meeting press conference whether that forecast had been revised, Powell largely declined to provide insight.

“I don’t want to characterize the staff forecast for this meeting,” he told reporters. “We’ll leave it for minutes.”

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The central bank will release the minutes at 2pm on Wednesday

Write to Megan Cassella at [email protected]

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