At the Federal Open Market Committee (FOMC) meeting held on the 2nd and 3rd, it was found that participants left room for future tightening and interest rate freezes.
In the minutes of the Federal Reserve System (Fed) FOMC meeting released on the 24th (local time), at the meeting on the 2nd and 3rd, “participants generally mentioned that there is a high degree of uncertainty about how much additional austerity policy will be appropriate in the future.” contained
The minutes continued, “Many participants focused on the need to leave room for choice after this meeting.” This suggests flexibility in pursuing additional austerity policies in the future.
According to the minutes, some attendees believed that, considering the current economic outlook, adherence to austerity policies, including additional rate hikes after the May meeting, may be unnecessary. This means that it could have a negative impact on the slowing economy.
On the other hand, some participants mentioned the Fed’s goal of returning inflation to the 2% level, and expressed their opinion that the process of realizing this could be ‘unacceptably slow’ and that the policy so far should be solidified at future meetings.
Amidst this divergent opinion, attendees stressed the “importance of closely monitoring future information and its impact on the economic outlook.” It is interpreted as meaning that the policy direction can change depending on the data.
According to the minutes released on the day, attendees saw economic activity increase at a moderate pace in the first quarter of this year. The job market remains strong and the unemployment rate remains low.
Inflation remains high, but the US banking system remains healthy and resilient. Attendees remained deeply wary of inflation risks.
For this year, real gross domestic product (GCP) is expected to grow at a slower pace than the long-term trend. It also assessed that stress in the banking sector could weigh on economic activity in the future.
Inflation is still above the long-term target of 2%, and core inflation is only partially easing. At the meeting, it is said that the prospect of a slight economic recession starting at the end of this year and a moderate recovery was presented.
The Fed has aggressively raised its benchmark interest rate over the past year to counter inflation, reaching its highest level in 16 years.
Inside the Fed, opinions are divided over whether to raise or freeze interest rates at the FOMC on the 13th and 14th of next month. The main reason is concerns that inflation is not slowing fast enough.
The Wall Street Journal (WSJ) diagnosed that the meeting minutes suggest that it will be difficult for the Fed to maintain a strong consensus in the coming months.
CNBC analyzed that the Fed appears to be moving towards a data-dependent approach.
Meanwhile, Fed director Christopher Waller, who is known for his hawkish tendencies, said on the same day that he is in favor of further rate hikes at the FOMC in June or July.
Waller said at a meeting in California that he expects data on economic and lending activity over the next two months to show “clearly” that interest rates should rise. Any further hikes would push interest rates to their highest level in 22 years.
St. Louis Fed President James Bullard, also a hawk, said on Monday that the Fed may have to raise rates twice more.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.