The minutes of the meeting released on Wednesday, July 6th, Eastern Time, showed that at the June monetary policy meeting, fed officials acknowledged that interest rate hikes may lead to slower economic growth, but believed that to prevent high inflation from becoming ingrained, it may be necessary to raise interest rates for a longer period of time. longer. Because the inflation outlook has deteriorated, interest rates need to rise to restrictive levels that are deliberately slowing the economy.
At the same time, the minutes confirmed that the Fed will discuss at this month’s meeting whether to continue raising interest rates by 75 basis points or slow down the rate to 50 basis points.
Some investors believe the hawkish stance the Fed reiterated at its June meeting is outdated, media commentary said, given recent data showing economic growth has slowed slightly more. This pushed U.S. stocks higher during the session, and the three major indexes, which turned down more than once during the session, completely got rid of the decline.
July meeting to consider whether to raise interest rates by 75 basis points
The Fed decided to raise interest rates by 75 basis points at its June meeting , the largest rate hike in more than 27 years. The minutes of the meeting showed that almost all Fed policymakers agreed that 6 The monthly rate hike was 75 basis points, and only one person voted against for a 50 basis point hike.
When discussing the policy actions that may be taken in the next few meetings, the participating officials still expected to continue raising interest rates in the future. The minutes specifically mentioned:
Participants decided that the next meeting (Wall Street News Note: July meeting ) may be suitable for raising interest rates by 75 basis points or 50 basis points . Participants agreed that the economic outlook warranted a restrictive stance on (monetary) policy. And they recognize that the stance may be even more restrictive if high inflationary pressures persist .
Inflation to 2% will take time, rate hikes could lead to a period of economic slowdown
The minutes showed that at the June meeting, Fed policymakers expected that it would take time to lower inflation, and that lowering inflation would come at the cost of a possible slowdown in economic growth.
Participants argued that the Russia-Ukrainian conflict, China’s epidemic prevention and other factors restricting the supply environment will affect the inflation outlook, and it may take some time for inflation to fall back to the Fed’s target.
Participants also decided that maintaining a strong labor market will depend on many factors affecting supply and demand in the process of bringing inflation down to 2%. Participants recognized that firm policy could slow growth for some time, but they expected that getting inflation back to 2 percent was the key to achieving sustained full employment.
Risks of high inflation entrenched fear May CPI hints inflation will last longer than previously expected
Fed policymakers at the meeting believed that to achieve the dual goals of full employment and price stability, the Fed needed to shift to a restrictive policy stance, the minutes said. And, from a risk management perspective, because once inflation is higher than expected, the Fed is in a better position to tighten restrictions.
One of the big risks facing the (FOMC) committee now , many (many) participants decided, is that high inflation could become entrenched if the public begins to doubt the committee’s resolve to ensure a change in policy stance. In this regard, participants emphasized that appropriate firmness of monetary policy, coupled with clear and effective communication, is critical to restoring price stability.
On the inflation front, Fed officials at the meeting noted that inflation remains too high, continuing to run well above its long-term target of 2 percent.
Participants were concerned that May’s CPI data suggested that inflationary pressures had yet to show signs of abating . A number of people see this as reinforcing the idea that inflation will be more persistent than they had previously expected .
Inflation has upside risks such as rising commodity prices. If inflation expectations are out of control, lowering inflation will pay a higher price
In assessing the economy, Fed officials at the meeting emphasized that they are very concerned about inflation risks, closely monitoring inflation and developments related to inflation expectations.
Most participants saw inflation risks to the upside, citing a number of associated risks, including persistent supply bottlenecks, and higher energy and commodity prices. Participants identified high uncertainty about economic growth in the coming years.
Most participants assessed that there are downside risks to the outlook for economic growth, including that further tightening of financial conditions could have a larger-than-expected negative impact on economic activity, and the impact of the Russian-Ukrainian conflict and China’s epidemic prevention on economic growth. The impact exceeded expectations.
In terms of inflation expectations, the minutes showed that,
While indicators of long-term inflation expectations from household surveys, professional forecasters, and market participants were broadly consistent with the FOMC Committee’s long-term inflation target of 2 percent, many participants were concerned that long-term inflation expectations could begin to rise beyond the 2 percent target . These participants pointed out that bringing inflation back to the FOMC target would be more costly if inflation expectations get out of hand .
Market Reaction
After the release of the minutes of the Fed meeting during the midday session, U.S. stocks first retreated and quickly rose in a short-term, and the three major U.S. stock indexes rose together during the session.
The us dollar index fluctuated upwards, breaking below 107.00 in the short-term and quickly regaining 107.00, approaching the high since December 2002, which was set at 107.30 in early trading of U.S. stocks.
The yield on the benchmark 10-year U.S. Treasury bond maintained an upward trend. After the announcement of the minutes, it stood at 2.90%. It once rose above 2.92% to refresh the daily high, and the intraday increase was more than 10 basis points. It has recovered about 17 basis points from a multi-month low.