FOMC minutes: Some officials favored a 25bps hike at the June meeting

• Federal Reserve released the minutes from its June 13-14 meeting.
• The minutes showed some policymakers favored a rate hike, but went with a pause. 
• US Dollar pulls back modestly after the minutes. 

The Federal Open Market Committee (FOMC) released the minutes of its June meeting, triggering a limited reaction across financial markets. According to the document, some officials favored a rate hike at the meeting, but went along with a pause. The minutes showed a division among FOMC members. 

In June, the Federal Reserve (Fed) kept the interest rate unchanged at 5.00% - 5.25%, as expected. In the projections, members see more rate hikes before year-end. The minutes show that “almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.”

“Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable for considering the appropriate stance of monetary policy”, the minutes noted. 

Key takeaways from the minutes:

“Participants generally noted that banking stresses had receded and conditions in the banking sector were much improved since early March."

“The economy was facing headwinds from tighter credit conditions, including higher interest rates, for households and businesses, which would likely weigh on economic activity, hiring, and inflation, al­though the extent of these effect remained uncertain. Against this backdrop, and in consideration of the significant cumulative tightening in the stance of monetary policy and the lags with which policy affects economic activity and inflation, almost all participants judged it appropriate or acceptable to maintain the target range for the federal funds rate at 5 to 5-1/4 percent at this meeting. Most of these participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy's progress toward the Committee's goals of maximum employment and price stability.”

“Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal.”

“The participants favoring a 25 basis point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee's 2 percent objective over time.”

“Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.”

“Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable for considering the appropriate stance of monetary policy.”

“Many also noted that, after rapidly tightening the stance of monetary policy last year, the Committee had slowed the pace of tightening and that a further moderation in the pace of policy firming was appropriate in order to provide additional time to observe the effects of cumulative tightening and assess their implications for policy.”

Market reaction: 

The US Dollar strengthened after the minutes. The DXY printed fresh weekly highs above 103.30 and EUR/USD fell toward 1.0850.