US Federal Reserve officials confirmed their intention to raise interest rates in the next two sessions as expected, but also left room for further corresponding moves in the following sessions if necessary.
In particular, as the minutes of the May meeting of the Fed released today show, US monetary policy officials stressed the need to raise interest rates quickly and possibly more than expected by the markets in order to address the growing problem. of inflation.
In addition, the bank officials pointed out that its policy may need to move beyond a “neutral” stance, which is neither supportive nor restricting growth.
“Most participants felt that increases by 50 basis points would probably be appropriate in the next two meetings,” the minutes said. In addition, members of the Commission stated that “a restrictive policy stance may well be appropriate given the evolution of the economic outlook and the risks involved”.
It is noted that the markets are currently pricing that the Fed will move to an interest rate around 2.5% -2.75% by the end of the year, something that many central bankers characterize as a neutral interest rate. The statements in the minutes, however, show that the committee is ready to go beyond that.
“All participants reaffirmed their strong commitment and determination to take the necessary measures to restore price stability,” the meeting said in a statement.
“To this end, the participants agreed that the Commission should quickly shift its monetary policy stance to neutral, both through increases in the federal funds rate and through reductions in the size of the Federal Reserve balance sheet,” it added.
On the Fed’s balance sheet, the plan calls for its reduction to gradually reach $ 95 billion by August, including $ 60 billion in bonds and $ 35 billion in mortgages.
It is noteworthy that the word inflation is mentioned 60 times in the minutes, with Fed members expressing concern about rising prices despite optimism that the bank’s moves and other conditions, such as the easing of supply chain bottlenecks, will help the situation.
On the other hand, of course, some officials have noted that the war in Ukraine and the lockdowns in China will exacerbate inflation.
It is worth noting, however, that there have been Fed officials who have expressed concern that tighter policies could cause instability in both the bond and commodity markets.
Among other things, it is noted that risk management issues “could cause significant liquidity requirements for large banks, stockbrokers, brokers and their clients”.
However, officials remained committed to raising interest rates and lowering the Fed’s balance sheet. Minutes said the move would put the bank in a “good position later this year” in order to reassess the impact of its policy on inflation.
Source: Capital
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