Fed Minutes: New interest rate hike is less certain – 05/24/2023 – Market

Fed officials agreed last month that the need for further interest rate hikes “became less certain,” with several saying the 25 percentage point hike approved last month meeting could be the last, according to the minutes of the meeting of May 2 and 3 released this Wednesday (24).

Others warned that the US central bank needs to keep its options open due to persistent inflation risks.

“A number of participants noted that if the economy evolves in line with its current outlook, further tightening may not be necessary after this meeting,” the minutes said, adding weight to expectations that the Fed is likely to pause its aggressive hike campaign. interest rates at the next meeting, on June 13th and 14th.

However, there was division over the trajectory ahead.

With Fed staff still projecting a mild recession this year, some policymakers saw evidence that last year’s tightening was starting to have its intended impact, with “nearly all participants” projecting risks to growth from tightening bank credit. .

However, “almost everyone” also saw upside risks to inflation, and many participants focused on the need to maintain options for maintaining interest rates or raising them. Some also say the need for a further rate hike is likely.

Furthermore, some participants stressed that it was crucial not to communicate that rate cuts were likely or that hikes “have been ruled out”.

Last month’s move to raise the central bank’s benchmark interest rate by 25 percentage points met with “very strong widespread support,” Fed Chair Jerome Powell said in an interview with reporters after the meeting three months ago. weeks.

The Fed shifted to a meeting-to-meeting approach after raising interest rates in May, signaling a possible pause in hikes for a while to at least allow the economy and financial system to fully adjust to rapid increases in US borrowing costs. last 14 months.

“Participants stressed the importance of communicating the data-driven approach to the public,” the minutes said of the Fed’s decision to change its guidance and open the door to a pause in rate hikes, while keeping open the possibility of further increases.

The base rate level defined in May, in a range between 5% and 5.25%, corresponds to the average peak expected by the authorities in their economic projections for December and March.

New projections will be released at the June meeting, but the latest data provided little clarity on where the Fed’s inflation battle is going and how fast. The pace of price increases is slowing, but only modestly, and the economy remains stronger than expected in important ways, most notably job and wage growth.

However, there are also signs of a slowdown in the economy, and an outbreak of stress in the financial system has led to expectations of tightening credit availability for businesses and households.