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Fed Keen to Move ‘Expeditiously’ on Hikes to Allow Reassess Later: Minutes -Breaking


© Reuters.

By Yasin Ebrahim — Federal Reserve policymakers agreed that the central bank should move “expeditiously” on rate hikes to rein in inflation, but also hinted that the Fed could be well positioned for a pause later this year, the minutes of the Fed’s May 3-4 meeting showed Wednesday. 

“[P]”Articipants deemed it necessary to swiftly move to a more neutral monetary policy stance,” according to the minutes.

The Fed would need to speed up rate increases in order to give it the breathing space needed for a possible reassessment of its tightening pace, as the minutes indicated. 

The minutes show that “many participants felt that expediting the elimination of policy accommodation would allow the Committee to be well-positioned to later in the year to assess both the effect of policy firming, and whether economic developments justified policy adjustments.” 

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The minutes echo recent commentary from some Fed members, who have been floated the idea of a Fed rate hike pause later this year. 

“I have got a baseline view where for me I think a pause in September might make sense,” Bostic told reporters Monday following a speech to the Rotary Club of Atlanta.

These data support a Fed that is less hawkish. Expectations for inflation have fallen and tightening financial markets are starting to affect demand in key sectors of the economy, including manufacturing and housing.  

The 10-year inflation breakeven — a key measure of inflation expectations over the next decade – fell to 2.6% earlier this week, still above the Fed’s 2% target but down from more than 3% seen in late February 

It concluded the May previous meeting. 4, the Federal Open Market Committee raised its benchmark rate in a range of 0.75% to 1%. It was the Fed’s largest rate hike since 2000.

Jerome Powell, Fed Chairman, signaled in a press conference following the release of its monetary policy statement that further rate rises of 50 basis points would be required to slow down economic growth as well as rein in high inflation. 

“[T]here is a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings,” Powell said at the press conference on May 4.

Fears that the Fed was planning to increase rates at its upcoming meeting were also dispelled by Powell, Fed chief. “Seventy-five basis points is not something the committee is actively considering,” Powell said.

Treasury yields have reacted in kind and lost their recent gains. The 10-year Treasury yields are now down further than 3%.   

Next month, the Fed will begin quantitative tightening by trimming its almost $9 trillion debt. This will further tighten financial conditions.

Starting June 1, Fed will reduce its balance sheet at $47.5 million per month.  

The plan would allow the Fed to initially release $30 billion of Treasury securities and $17.5 million in agency MBS, and then gradually increase the amount to $35 billion each month.