The Fed’s May meeting minutes showed that rates would likely stay higher for longer if the inflation readings continued to let down. In the minutes from the May 1 Fed meeting, some policymakers discussed the possibility of raising rates if needed.
Minutes of the Fed’s May Meeting
The minutes of the Fed’s May meeting said that many participants discussed their willingness to tighten policy further. However, this will only be possible if risks to inflation materialize, making such an action necessary.
Stocks have decreased from record highs after the Fed meeting on May 1 minutes was released. Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said that higher for longer is the official mantra as the Fed accepted that inflation has been more persistent than expected. Although they wanted to cut rates, they will not be able to do that soon.
The Fed kept its interest rate at 5.25%-5.50% on May 1, a 23-year high, aiming to reduce inflation to 2%. First-quarter inflation was higher than expected, but April showed some slowing in the rise of inflation. The “core” Consumer Price Index, excluding food and energy, rose 3.6% year-over-year, down from March’s 3.8%.
According to Fed’s May meeting minutes, Fed officials said higher-than-expected first-quarter inflation and strong economic indicators were the reasons behind their decision to keep rates high for longer.
According to minutes of the Fed’s May meeting, some Fed officials thought that the increase in inflation in January might be due to large seasonal patterns. However, others said that price changes in some components had affected recent inflation readings.
Some officials stressed that the recent broad-based inflation increases should not be ignored.
Fed’s May Meeting Minutes
Many officials in the Fed’s May meeting minutes also discussed the uncertainty of current rates. This suggested that these monetary policies might be less impactful than in past cycles or that neutral long-run rates might be higher.
The Fed’s May meeting minutes, released three weeks after the meeting, show Fed officials’ calls to keep rates high due to the high inflation in the first quarter. Cleveland Fed President Loretta Mester and Boston Fed President Susan Collins said they need more evidence of cooling inflation before lowering rates.
Collins said the Fed must be patient as reducing inflation will take longer than expected. Mester wants to see a few more months of reducing inflation data before considering rate cuts.
Fed Governor Chris Waller said it is important to keep interest rates steady for longer. He added that he will need several months of favorable inflation data before considering rate cuts. This is similar to Fed Chair Jay Powell’s statement that more than a quarter’s worth of data is needed to understand if inflation is consistently decreasing towards 2%.
The Fed may need more than three inflation reports to consider lowering rates from a 23-year high. This suggests a possible rate cut in September if the data supports it.
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