Fed Minutes Reveal Near Unanimous Support for Further Rate Hikes

The Federal Reserve released today the minutes from its January 31/February 1 meeting, when the institution raised its benchmark rate by 25 basis points to 4.50-4.75%.[0] The notes revealed near unanimous support for recent hikes, but with a few dissenting in favor of more aggressive measures.[1] The minutes acknowledged that inflationary pressures have moderated, but noted price growth remains well above the Fed's 2 percent target, with labor market tightness contributing to continuing upward pressures on wages and prices.[2]

The Fed members at the meeting agreed that higher interest rates were necessary in order to bring inflation sustainably back to the 2.0% target. Some policymakers noted that the financial situation had become more relaxed in the past few months, and if it continues, “could necessitate a tighter stance of monetary policy.”[3] To this end, the minutes showed that “almost all” FOMC members backed the slowdown to 25 bps rate hikes.[4]

The minutes showed that there was backing for an additional 0.25% increase in the rate at the Federal Reserve's meeting in March.[5] Recent economic data, which includes a strong jobs report, higher than anticipated inflation, and strong retail sales, suggests that a larger interest rate hike of 50 basis points might be possible.[5]

A few Federal Reserve officials argued that the recent bankruptcies of businesses related to cryptocurrency had a limited impact on the overall financial market, evidencing that the cryptocurrency market has had limited contact with the banking system thus far.[3]

It is expected that interest rates will reach a peak of 5.25-5.5% in June, but money markets indicate that there is a 30% chance that rates will increase to 5.50-5.75% by July.[6] The US Dollar Index (DXY) and US yields have surged, particularly at the short end of the curve, resulting in a negative impact on US stocks recently.[4]

Overall, the Fed continues to anticipate further increases in interest rates in order to ensure that inflation comes sustainably back to the 2.0% target. Despite the fact that inflation has been declining since the Federal Reserve began raising rates in March of last year, recent data suggests that inflation is not diminishing as quickly as the Federal Reserve had hoped.[7]

0. “European Shares Advance As Investors Digest Fed Minutes” RTTNews, 23 Feb. 2023, https://www.rttnews.com/3346002/european-shares-advance-as-investors-digest-fed-minutes.aspx

1. “The Fed Lays Plan for Additional Interest Rate Hikes at the Expense of Economic Recovery” Accountable.US, 22 Feb. 2023, https://accountable.us/the-fed-lays-plan-for-additional-interest-rate-hikes-at-the-expense-of-economic-recovery

2. “With inflation still the focus, Fed minutes show openness to higher rates endgame” CNA, 22 Feb. 2023, https://www.channelnewsasia.com/business/inflation-still-focus-fed-minutes-show-openness-higher-rates-endgame-3297751

3. “Some Fed officials favored raising fed funds rate by 50 bps: FOMC minutes” Seeking Alpha, 22 Feb. 2023, https://seekingalpha.com/news/3939344-some-fed-officials-favored-raising-fed-funds-rate-by-50-bps-fomc-minutes

4. “More Rate Hikes to Come, According To Latest Fed Meeting Minutes – Here's What That Means For Crypto” Cryptonews, 22 Feb. 2023, https://cryptonews.com/news/more-rate-hikes-come-according-latest-fed-meeting-minutes-heres-what-that-means-for-crypto.htm

5. “Stock Market Today: Stocks End Mixed After Fed Minutes” Kiplinger's Personal Finance, 22 Feb. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-022223-stocks-end-mixed-after-fed-minutes

6. “Fed officials back ongoing rate hikes to quell above-target inflation: Fed minutes By Investing.com” Investing.com, 22 Feb. 2023, https://www.investing.com/news/economy/fed-officials-back-ongoing-rate-hikes-to-quell-abovetarget-inflation-fed-minutes-3010959

7. “Changing expectations of the Fed's forward guidance pressure gold lower” Kitco NEWS, 21 Feb. 2023, https://www.kitco.com/commentaries/2023-02-21/Changing-expectations-of-the-Fed-s-forward-guidance-pressure-gold-lower.html

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