“A restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook,” Minutes of the Fed’s May 4 meeting indicated.
Updated at 2:17 pm EST
The Federal Reserve is set to hold its path of interest hikes, minutes from the central bank’s May meeting revealed Wednesday, suggesting that a “restrictive” policy stance could be appropriate.
Such a declaration could mean the Fed is prepared to raise rates beyond the so-called neutral level, which many define as a rate of between 2% and 2.5%, in order to attack the fastest inflation in more than four decades. However, most noted that two more rate hikes of 50 basis points each — in June and July — was likely the most appropriate path, although participants agreed that “expeditious” moves were needed.
“Participants agreed that the economic outlook was highly uncertain and that policy decisions should be data dependent and focused on returning inflation to the Committee’s 2% goal while sustaining strong labor market conditions,” Minutes of the Fed’s May 4 policy meeting indicated. “At present, participants judged that it was important to move expeditiously to a more neutral monetary policy stance.”
“They also noted that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook,” the minutes noted.
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U.S. stocks traded modestly higher following release of the minutes at 2:00 pm Eastern time, with the Dow Jones Industrial Average trading 65 points lower on the session and the S&P 500 rising 24 points.
Benchmark 10-year Treasury note yields, meanwhile, were little-changed at 2.752%, while the U.S. dollar index was marked 0.4% higher at 102.258.
The CME Group’s FedWatch tool suggests a 94.1% chance of a 50 basis point hike in June, followed by a 92.3% chance of a similar-sized move in July. From there, bets on deeper rate hikes begin to fade as the Fed moves closer to its so-called neutral Fed Funds rate of between 2% and 2.5%.
“In light of the high degree of uncertainty surrounding the economic outlook, participants judged that risk-management considerations would be important in deliberations over time regarding the appropriate policy stance,” the Minutes said. “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.”:
