Fed Minutes Reveal Inflation Concerns, Divided Views on Rate Hikes

Fed Minutes Reveal Inflation Concerns, Divided Views on Rate Hikes 

Since the last FOMC statement on June 12, prices for oil, gold, stocks, the dollar, and parts of the bond market have increased.

The shorter end of the yield curve has decreased in yield since the last FOMC meeting, but the longer end remains higher despite today's drop in yields.

The US economic outlook has worsened significantly compared to expectations, reaching its weakest point since December 2015.

Today's economic weakness has heightened expectations for rate cuts, returning to levels seen immediately after Powell's press conference.

In light of the hawkish tone in the DOTS, what key messages does the Fed want to convey from today's Minutes?

Here are the highlights from the Federal Reserve's June 11-12 meeting minutes, released Wednesday:

Officials indicated that it would not be appropriate to lower borrowing costs until there was more confidence that inflation was moving towards their 2% target.

The majority of Fed officials observed that economic growth appeared to be slowing gradually, and most participants felt that the current policy stance was restrictive.

Officials noted evidence of inflation progress through smaller monthly gains in the core personal consumption expenditures price index, supported by May consumer price data released before the rate decision.

Participants discussed several factors likely to contribute to continued disinflation, such as easing demand-supply pressures, the delayed effects of past monetary policy tightening, and potential supply-side improvements, including productivity boosts from artificial intelligence technology. They noted that long-term inflation expectations remained well anchored, which supports the disinflation process. However, additional favorable data are needed to be confident that inflation is moving sustainably towards 2%.

Some officials stressed the importance of patience in maintaining high rates to restrain demand, while others suggested that if inflation stays elevated or increases, rates might need to be raised. Several officials pointed out the need to be ready to respond to unexpected economic weaknesses, with some noting that a further drop in demand could raise unemployment rather than just reduce job openings.

WSJ Fed-Watcher Nick Timiraos confirmed the more dovish bias of the Minutes.