Investors, analysts, and economists were eagerly waiting for the release of FOMC meeting minutes for more information on the central bank’s rate-hike course. The minutes of the US Federal Open Market Committee (FOMC) meeting are closely observed by global investors.
FOMC meeting minutes reveal Fed members’ perspectives on terminal rate and potential Federal Funds Rate direction. The minutes of the FOMC meeting held on June 13-14 have been released on July 5, Wednesday at 2 p.m.
The FOMC minutes of the meeting held in June revealed that the vast majority of respondents to the Open Market Desk’s Surveys of Primary Dealers and Market Participants expected no rate change at this meeting. While the median path from the surveys pointed to no rate changes through early 2024, there was significant dispersion across respondents, and respondents saw a clear probability of additional tightening at coming meetings.
Desk survey respondents still saw a recession occurring in the near term as quite likely, but the expected timing was again pushed later, as economic data pointed to the continued resilience of economic activity. Overall, respondents generally continued to expect that any downturn would be neither deep nor prolonged. With regard to inflation expectations, respondents marked up their projections for quarterly core personal consumption expenditures (PCE) inflation in the second and third quarters of this year, while projections for later quarters were little changed.
The information available at the time of the June 13–14 meeting suggested that real gross domestic product (GDP) was expanding at a modest pace in the second quarter. Labor market conditions remained tight in recent months, as job gains were robust and the unemployment rate was low. Consumer price inflation—as measured by the 12-month percent change in the price index for PCE—continued to be elevated in April.
Labor market conditions remained tight in April and May. Total nonfarm payroll employment increased at a robust pace during those two months. The unemployment rate edged up, on net, but was still at a low level of 3.7 percent in May. On balance, the unemployment rate for African Americans moved up to 5.6 percent, while the jobless rate for Hispanics moved down to 4.0 percent. In aggregate, the labor force participation rate held steady in April and May, and the employment-to-population ratio ticked down. The private-sector job openings rate in April—as measured by the Job Openings and Labor Turnover Survey—was unchanged from its relatively high first-quarter average, though it was lower than a year earlier.
Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
The Federal Reserve maintained the 5%–5.25% Fed funds rate target during its meeting in June 2023. After 10 straight rises that increased borrowing costs by 500 bps to their highest level since September 2007, it was the first break in the tightening process.
The US Fed, in June, had met market expectations, but with a twist. The Federal Reserve kept interest rates at their current level but hinted that more increases are anticipated given the hawkish forecast for the economy. The FOMC has stopped hiking the federal funds rate, but after at least two more predicted rate increases, median predictions from its members lead to a final rate of 5.6%.
Future rate increases are anticipated by the markets to occur in July and September. Powell’s past statements, in which he said that the Fed would wait to see how prior rate hikes affected the economy, are mostly to blame for this anticipation. Rates will likely stay higher for longer than initially anticipated, according to Fed Chair Powell. As core inflation continues to go essentially unchecked, Federal Reserve Chair Jerome Powell’s statement to Congress last month also provided the cues for a more hawkish tone.
Because of what Federal Reserve Chair Jerome Powell has called “surprisingly persistent inflation and labor-market strength,” the Fed has paused its sequence of interest-rate hikes, but borrowing costs are expected to climb more quickly than initially predicted.
The healthy employment market and the resilient US retail sales figures are further evidence of the economy’s resiliency, which may be the reason why there has been a cooling effect on inflation. Each of these has the potential to increase inflation once more and complicate the Fed’s job.
While waiting for additional signs from the economy, the central bank, and corporate results, markets that have risen significantly in the first six months will decide on the next leg of the bull run. Any unexpected bad news might shock the markets, while any unexpected good news might prolong the run into the second part of the year.