The minutes of the most recent Federal Open Market Committee (FOMC) meeting of the US Fed gets released on May 24 at 2:00 p.m. ET. or 11.30 pm IST. The FOMC Minutes cover the May 2-3 meeting, when the US Fed hiked rates by 25 basis points, bringing the Federal Funds Rate range to 5%-5.25%.
The May rate hike was the tenth straight rate increase by the US Fed after it started raising rates to tame inflation which has come down to under 6% from a high of 9.1% witnessed last year. FOMC minutes is expected to reveal the member’s take on the inflation data and how they may act in future.
Meanwhile, markets expect the Fed to pause in its next FOMC meeting to be held on June 13-14. Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations says, “Investors around the world will be delving into the minutes of the meeting to look for hints about whether the world’s most influential central bank will hike interest rates for the 11th consecutive time in June. Despite inflation remaining high, and continuing tightness in the labour market, there’s a growing sense that the Fed is now likely to pause its rate-hiking agenda next month.”
The US CPI data for May 2023 are scheduled to be released a day before the rate hike announcement on June 13, 2023. Fed chief Powell has already hinted at eyeing the incoming data for any future rate hike action. An expectation for a Fed pivot could be too early and highly risky.
“Much of this optimism is down to Federal Reserve Chair Jerome Powell saying Friday that stresses in the banking sector could mean that interest rates won’t have to be as high to control inflation. If this consensus gains momentum on the back of the FOMC minutes on Wednesday, markets will rally as it will appear that the end of rate hikes is getting closer and closer. However, should this happen, investors must remember this would not yet be a pivot, it would remain a hawkish pause,” adds Green.
Given the increased level of uncertainty around the economy and the direction of future policy, the Fed is more constrained in the amount of forward guidance it can provide.
Inflation is still high, and lending requirements are tightening due to rate increases, which is making banks nervous. Even though the Fed is keeping the option of raising rates open, they are cognizant that doing so could cause the economy to have a hard landing. Fed may decide to pause the rate hike until further statistics are released.
As economic conditions are rapidly changing, the minutes from the FOMC meeting in May will contain some dated information and thus may be less relevant today. Markets are more concerned with the current state of the economy and will be watching Fed officials’ statements over the coming days.