The latest meeting minutes released by the Federal Reserve on May 20 local time revealed that during the monetary policy meeting held from April 28 to 29, most officials expressed willingness to support raising interest rates if inflation remains persistently high. This stance represents a notable shift towards a more hawkish position compared to earlier communications, signaling that discussions of "rate cuts" have largely receded from the spotlight.
The minutes indicated that a majority of participants emphasized that further policy tightening may be necessary if inflation continues to run stubbornly above the 2% target. This reflects deep-seated concerns among policymakers regarding the inflation outlook. According to the minutes, staff projections for inflation this year were significantly higher than those made in March, primarily due to rising energy prices and supply chain pressures stemming from conflicts in the Middle East.
Participants broadly agreed that geopolitical tensions in the Middle East could have significant implications for the economic outlook and the policy path. Elevated energy prices are expected to continue exerting upward pressure on overall inflation in the near term, with the vast majority of officials acknowledging that the timeline for inflation to return to the 2% target is likely to be longer than previously anticipated.
Notably, many policymakers were even inclined to remove the "easing bias" language from the policy statement, which had previously hinted at potential future rate cuts. While a few officials believed that rate cuts later this year would still be appropriate if inflationary pressures ease, this view no longer represents the consensus. This meeting marked the final one under Chairman Jerome Powell's tenure, with incoming Chairman Kevin Warsh set to lead a Federal Reserve that is adopting a more hawkish stance. Market expectations have adjusted swiftly, with the risk of interest rate hikes being seriously considered for the first time since 2023.
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