Minutes released on Wednesday from the May 3-4 Fed meeting confirm what many investors already knew: there’s a high likelihood that additional 50-basis point rate hikes are coming.
What Happened: The minutes show that Fed officials plan to begin reducing the central bank’s balance sheet in June, which stands at $9 trillion.
After the Fed raised the interest rate by a half-percentage point to a target range of 0.75% and 1% during its May meeting, there was strong agreement for officials to continue the increases moving forward. The minutes indicate that “most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings.”
The minutes go on to note that, “Many participants judged that expediting the removal of policy accommodation would leave the committee well positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments.”
The markets are currently anticipating the Fed to continue increasing rates until they reach around 2.5%-2.75% by the end of 2022.
Why It Matters: The Federal Reserve’s hawkish stance comes in response to inflation rates that haven’t been seen in 40 years.
The challenge the central bank faces is cooling the rate of inflation, without triggering a recession in the U.S. economy. Some economists point to data showing GDP fell 1.4% in the first quarter, as a reason for the Fed to proceed with caution.
The minutes show that Fed officials will be closely monitoring the changing economic dynamics, saying “that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”
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