Fed Minutes signal inflation risks are skewing to the upside

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The minutes of the Federal Open Market Committee of the meeting of May 3 and 4, when the Federal Reserve raised interest rates by 50 basis points, to 1.0%, have been published.

FOMC Minutes

All participants in the May meeting agreed to the 50 basis point interest rate hike. Most considered appropriate this type of raising in the next two meetings.

All Fed members agree that the The US economy is very strong, the labor market is extremely tight, and inflation is very high..

The Fed must change monetary policy to a more neutral position without delayaccording to all participants, who also believe that the ‘restrictive’ stance of monetary policy may be appropriate.

Members viewed the conflict in Ukraine and lockdowns in China as “exacerbated risks”, with particular challenges in restoring price stability while maintaining a strong labor market.

Many participants judged that a faster removal of accommodative policy would leave the Fed “well positioned” to assess what adjustments are needed at the end of the year..

Fed participants stress that they are “very attentive” to the risks of inflation and agree that these risks are biased to the upside.

All members of the entity supported plans to reduce the size of the Fed’s balance sheet. Some commented that after the road was well underway, it would be appropriate to consider sales of mortgage-backed securities.

Participants said the GDP decline in the first quarter of 2022 contained “little signal about subsequent growth”, and they expected real GDP to grow “only” in the second quarter and approach or exceed the trend for the full year.

Source: Fx Street

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