Fed officials divided over additional interest rate hikes, meeting minutes show
Fed policymakers split on support for future interest rate hikes, meeting minutes show
Federal Reserve officials are misreading the situation: David Kelly
JPMorgan chief global strategist David Kelly and SlateStone Wealth chief market strategist Kenny Polcari provide insight on the Fed's policies to combat inflation on 'The Claman Countdown.'
Federal Reserve officials were split at their meeting earlier in May on whether additional interest rate hikes are needed to lower chronically high inflation, according to minutes released Wednesday.
"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," minutes from the U.S. central bank's May 2-3 meeting said.
At the same time, "some" policymakers noted that chronic inflation means "additional policy firming would likely be warranted at future meetings." In Fed vernacular, "several" typically implies more than "some."
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Pedestrians near the U.S. Treasury building in Washington, D.C., on Dec. 30, 2022. (Ting Shen/Bloomberg via Getty Images / Getty Images)
Despite the division over future rate hikes, officials unanimously agreed at the meeting to lift the federal funds rate for the 10th straight time to a range of 5% to 5.25%, the highest since 2007.
Policymakers also removed a key phrase from its post-meeting statement that indicated "additional policy firming may be appropriate" at coming meetings and stressed they will rely on economic data releases for any future policy shifts.
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"Participants generally expressed uncertainty about how much more policy tightening may be appropriate," the minutes said. "Many participants focused on the need to retain optionality after this meeting."
Although inflation has eased from a peak of 9.1%, it remains about more than double the pre-pandemic average and well above the Fed's 2% target rate. On top of that, the labor market remains uncomfortably tight, with unemployment recently falling to 3.4% – the lowest rate since 1969 – despite the slew of rate increases and ongoing strains within the banking sector.
Fed Chairman Jerome Powell speaks during a news conference in Washington, D.C., on March 22, 2023. (Al Drago/Bloomberg via Getty Images / Getty Images)
Investors have been betting that the Fed would take a break in raising rates at its June meeting, but there is a growing contingent that expects the central bank to lift rates for the 11th time at the June 13-14 meeting.
The probability that the Fed hikes rates in June by a quarter-percentage point jumped to 29.5% on Wednesday afternoon – up from 17.4% the previous week, according to data from the CME Group's FedWatch tool, which tracks trading.
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"Nearly all of the Fed officials have acknowledged that inflation remains too high," said Quincy Krosby, chief global strategist for LPL Financial. "Many officials are suggesting, however, that another rate hike may be needed to finally quell inflationary pressures that remain in the economy."