FOMC minutes: Fed members split on support for more interest rate hikes


  • Federal Reserve released the minutes from its May 2-3 meeting, when it raised rates by 25 bps. 
  • The minutes showed a division on support for more rate hikes. 
  • US Dollar holds onto daily gains after minutes. 

The Federal Open Market Committee (FOMC) released the minutes of the May 2-3 meeting, triggering a limited reaction across financial markets. According to the document, officials were split on support for more interest rate hikes. They agreed that inflation was still “unacceptably high,” and they continue to see a “mild recession” later this year.

In May, the Federal Reserve (Fed) raised the key interest rates by 25 basis points to 5.00% - 5.25%, as expected. The central bank hinted at a potential pause at the June 13-14 meeting. Since the May meeting, economic data from the US has been mixed, but far from indicating a recession. The Consumer Price Index (CPI) slowed to 4.9% in April; however, the Core CPI rose to 5.5% from a year earlier. On Friday, the US will release April's Core Personal Consumption Expenditure Price Index, the Fed's preferred inflation gauge.

Key takeaways from the minutes:

“The economic forecast prepared by the staff for the May FOMC meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery.”

“Participants agreed that the U.S. banking system was sound and resilient. They commented that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation. However, participants agreed that the extent of these effects remained uncertain.”

“Participants generally anticipated that under appropriate monetary policy, imbalances in the labor market would gradually diminish, easing pressures on wages and prices.”

“Participants agreed that inflation was unacceptably high.”

“Many participants mentioned that it is essential that the debt limit be raised in a timely manner to avoid the risk of severely adverse dislocations in the financial system and the broader economy.”

Participants generally agreed that in light of the lagged effects of cumulative tightening in monetary policy and the potential effects on the economy of a further tightening in credit conditions, the extent to which additional increases in the target range may be appropriate after this meeting had become less certain.”

“Participants generally expressed uncertainty about how much more policy tightening may be appropriate. Many participants focused on the need to retain optionality after this meeting.”

Some participants commented that, based on their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings.”

Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.”

“Almost all participants stated that, with inflation still well above the Committee's longer-run goal and the labor market remaining tight, upside risks to the inflation outlook remained a key factor shaping the policy outlook. A few participants noted that they also saw some downside risks to inflation.”

Market reaction: 

The US Dollar Index held at two-month highs, slightly below 104.00 after the minutes. The reaction across financial markets was limited. EUR/USD remained near monthly lows under 1.0770. 
 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD treads water just above 1.0400 post-US data

EUR/USD treads water just above 1.0400 post-US data

Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.

EUR/USD News
GBP/USD remains depressed near 1.2520 on stronger Dollar

GBP/USD remains depressed near 1.2520 on stronger Dollar

Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.

GBP/USD News
Gold keeps the bid bias unchanged near $2,700

Gold keeps the bid bias unchanged near $2,700

Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.

Gold News
Geopolitics back on the radar

Geopolitics back on the radar

Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.

Read more
Eurozone PMI sounds the alarm about growth once more

Eurozone PMI sounds the alarm about growth once more

The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures