The minutes of the May meeting of the Federal Open Market Committee (FOMC), which the markets are eagerly waiting for, have been published. Officials often expressed uncertainty about “how much further policy tightening might be appropriate.”
Differences of opinion on the next step came to the fore
While the Fed’s decision to raise the benchmark rate by a quarter percentage point was unanimous, the summary of the meeting reflects divergences on the next step and a less aggressive policy trend. Some officials think that more rate hikes are needed, while others say that further tightening is unnecessary due to the slowdown in economic growth.
The Fed shows it’s starting to move towards a more data-dependent approach based on multiple factors that will determine whether the cycle of rate hikes will continue. According to the minutes, officials often express uncertainty about “how more appropriate additional policy tightening might be.”
According to the minutes, the discussion mainly focuses on two scenarios. The first is a scenario advocated by some members, where the decline in inflation is “unacceptably slow” and will require further increases. The other scenario was supported by “a few” FOMC members who saw a slowdown in economic growth that “further policy tightening may not be necessary after this meeting”. However, in Fed language, “a few” are thought to be more than “some”.
At the meeting, where the problems in the banking sector were also discussed, it was stated that many medium-sized institutions were closed. According to the minutes, members expressed their readiness to use their instruments to ensure that the financial system is sufficiently liquid to meet its requirements.
Expected quarter point cut by year end
Markets expect the May rate hike to be the last in this cycle, with the Fed cutting interest rates by about a quarter point by the end of the year. This expectation comes with the assumption that the economy will slow down and perhaps fall into recession, while inflation will come closer to the Fed’s 2 percent target.
However, almost all officials expressed their skepticism at the prospect of a rate cut this year, even openly disapproving.
“The rate hike should not be stopped unless the 2 percent target is approached”
Finally, Fed Board Member Christopher Waller said in a speech on Wednesday that the data did not provide a clear cut for the June rate decision, but that he thinks further increases will be needed to curb ongoing high inflation.
“I don’t think the data coming in over the next few months will clearly show that we’ve reached the final interest rate,” Waller said. I also do not support stopping the rate hike unless there is clear evidence that inflation is starting to fall towards our 2 percent target. But whether we raise rates or skip at the June meeting will depend on how the data comes in over the next three weeks.” he said.
Bitcoin followed sideways after the minute
After the publication of the minutes, no significant movement was observed in the price of Bitcoin. The leading cryptocurrency, which experienced a withdrawal of up to a thousand dollars during the day, is trading at 26 thousand 235 dollars as of 22.00 TSI.
