Get Premium Data for Cyber Monday: Up to 55% Off InvestingProCLAIM SALE

Fed Keen to Move 'Expeditiously' on Hikes to Allow Reassess Later: Minutes

Published 05/25/2022, 02:00 PM
Updated 05/25/2022, 02:31 PM
© Reuters.

By Yasin Ebrahim

Investing.com -- 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 judged that it was important to move expeditiously to a more neutral monetary policy stance," the minutes showed.

The need for speed on rate hikes would provide the Fed with much needed breathing room to potentially reassess the pace of tightening, the minutes showed. 

"Many participants judged that expediting the removal of policy accommodation would leave the Committee well positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments," according to the minutes. 

The minutes echo recent commentary from some Fed members, who have been floating 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.

The recent economic data appear in support of a less hawkish Fed. Inflation expectations have been trending lower, and tightening financial conditions are beginning to hurt demand in key areas of the economy including housing and manufacturing.  

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 

At the conclusion of its previous meeting on May. 4, the Federal Open Market Committee raised its benchmark rate in a range of 0.75% to 1%. The move marked the biggest Fed rate hike since 2000.

In the press conference that followed the monetary policy statement, Fed Chairman Jerome Powell signaled that further 50 basis point rate hikes would be needed to slow economic growth and rein in elevated 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.

The Fed chief also quelled fears that the central bank was eyeing much larger rate hikes at upcoming meetings. “Seventy-five basis points is not something the committee is actively considering,” Powell said.

Treasury yields have responded in kind, giving up their recent gains, with 10-year Treasury yields retreating further from 3%.   

A further tightening in financial conditions will get underway next month as the Fed kicks off quantitative tightening -- by trimming its nearly $9 trillion balance sheet.

The Fed will start reducing its balance sheet on June 1, at a pace of $47.5 billion per month.  

Under the plan, the Fed would initially allow $30 billion in Treasury securities and $17.5 billion in agency MBS to roll off its balance sheet, with the intent of gradually stepping up the pace after three months to $60 billion and $35 billion per month, respectively.  

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.