The June FOMC Meeting just came out
Almost all participants highlighted the importance of monitoring upside risks to the inflation outlook and the possibility of inflation expectations becoming unanchored. This remains a key factor in the policy outlook.
According to the Fed Minutes, some members favored an interest rate increase due to a tight labor market and strong economic momentum. However, there was little evidence of inflation returning to the 2% target over time.
The majority of participants agreed to leave the target rate unchanged. This suggests a preference for maintaining the current policy stance.
Concerns were raised about potential upward pressure on money market rates due to increased treasury bill issuance, which may reduce the use of the RRP (Reverse Repo) facility.
Almost all participants highlighted the importance of monitoring upside risks to the inflation outlook and the possibility of inflation expectations becoming unanchored. This remains a key factor in the policy outlook.
A few participants expressed support for a 25 basis points rate hike. This indicates a willingness to consider a more restrictive monetary policy.
The recent meeting of the FOMC made headlines after the Federal Reserve hit the pause button on ongoing rate hikes. The month of June was the first to notice no increase in interest rates after ten consecutive rate hikes in the span of 15 months.
The Fed was seeking to achieve maximum employment and inflation at a rate of 2% over the longer run. In order to make this happen, the Fed refrained from increasing the interest rate stating,
“In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.
However, in subsequent speeches, Federal Reserve Chair Jerome Powell noted that two more rate hikes are likely necessary this year. These hikes would allow the central bank to bring the inflation rate down to the current 2% target.
At the time of writing, the CME FedWatch tool is suggesting an 88.7% chance of the Fed raising interest rates by 25 basis points (bps) during the next meeting set to be held on July 26. This probability has only been increasing since the last meeting, and over the past week, the possibility has risen by 7%.
