Stock Market

Most Fed officials lean to 1/2-point rate hikes at ‘next couple of meetings’ – News Opener

Most senior officials at the Federal Reserve “judged” that 1/2-point increases in a key U.S. interest rate would “likely be appropriate at the next couple of meetings,” according to the minutes of the central bank’s last strategy session in early May.

After an expected series of rate hikes, the minutes show, Fed officials would likely reassess the economy to determine how much further the central bank would go.

Wall Street expects the Fed to raise its benchmark rate that it kept near zero during the pandemic to above 3% by year end. The minutes gave no indication that the Fed plans to ease up.

“Participants agreed that the [federal Open Market] Committee should expeditiously move the stance of monetary policy toward a neutral posturing, the minutes said.

Previously the Fed viewed a benchmark rate of around 2.5% as neutral, but some members have recently suggested it might be higher.

The rate of inflation as measured by the consumer price index rose by 8.3% in the 12 months ended in April, well above the Fed’s 2% target.

To combat high inflation, the bank raised the short-term fed funds rate by 50 basis points after the May 3-4 meeting. It was the second rate hike this year.

The main U.S. stock gauges
SPX,
+0.90%

DJIA,
+0.49%

COMP,
+1.52%

were recently trading mostly higher after the release of the Fed minutes.

By and large, senior Fed officials expressed confidence in the U.S. economy. The took note of strong consumer spending and robust business investment and predicted the economy would grow “solidly” in the second quarter.

By quickly raising interest rates, the Fed hopes to give itself some breathing room by the end of the year on what steps to take next.

An aggressive strategy would leave the Fed “well positioned later this year” to assess the effects of higher rates on the economy and to determine the extent of further increases.

Some Fed officials wondered if inflation may have already peaked based on the most recent information. “A number of participants” suggested price pressures “may no longer be worsening.”

Yet they acknowledged it was too early to be confident. The war in Ukraine and lockdowns in China could exacerbate inflation in the short run, they noted.

Some members also worried that rising rates and the fight against inflation could harm the Fed’s ability to keep U.S. unemployment near historically low levels.

Still, the minutes showed that “all” Fed officials stressed their “strong commitment” to reduce inflation to previously low levels that prevailed in the decade before the pandemic.

 Source link

Back to top button
SoundCloud To Mp3