Fed minutes show commitment to strong rate hikes in June, July

The Federal Reserve has committed strongly to 0.50% moves in June and July, according to minute from the central bank’s May meeting released on Wednesday afternoon.

On May 4, policymakers increase short-term interest rates by 0.50% within the target range from 0.75% to 1.00% to reduce inflation. Higher interest rates make it more expensive to borrow, which in theory reduces consumption which is enabling companies to raise prices.

However, the minutes of the meeting outline a strong agreement among Fed officials on additional 0.50% hikes after at least two further meetings, scheduled for 14-15/ 6 and 26-27 July.

“Most participants assessed that a 50 basis point increase in the target range would likely be appropriate over the next few meetings,” reads the minutes from the May 3-4 meeting.

The Fed is not often direct about what it will do at future meetings, as the agency often prioritizes flexibility in changing its policy process as data changes. But with inflation hitting levels not seen since the early 1980s, the Fed is poised to issue more public guidance on its intentions to raise rates further.

After the May 4 rate hike, Fed Chairman Jay Powell told the press there was “broad sense” within the committee that further 0.50% moves “should be on the table” for next two meetings.

The Fed chairmen who spoke to Yahoo Finance earlier this month appear to be part of that “broad” support.

Cleveland Fed President Loretta Mester told Yahoo Finance on May 10 that she will “Comfortable” with that strategyand Atlanta Fed President Raphael Bostic said the same day that he could see 0.50% movement for “the next two, or perhaps three, meeting.”

Fed President St. Louis James Bullard – who once explained the possibility of a 0.75% increase – told Yahoo Finance on May 11 that his colleagues “merged” around that plan for two 0.50% moves.

The Fed minutes noted that Fed officials will continue to raise interest rates above estimates for the neutral rate, defined as a rate that economists feel is not a stimulus or a limit. mechanism for economic growth. This estimate implies that the rate will rise above 2.5% at some point in this cycle.

“Participants agreed that the economic outlook is highly uncertain and policy decisions should be data-driven,” the Fed minutes added as a warning.

Inflation remains a pressing concern for Fed officials, complicated by Russia’s invasion of Ukraine and the COVID-related shutdown in China. Both events led to disruptions in global supply chains that, in part, drove prices up. Fed officials say those pressures may ease at some point, but the timing and extent will be “uncertain.”

The minutes noted that all policymakers on the committee supported the 0.50% move in May, in addition to the Fed’s plan to begin shrinking its $9 trillion balance sheet starting Jan. June.

Brian Cheung is a reporter covering the Fed, economics and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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