Market participants showed only a muted reaction to the release of the FOMC Meeting Minutes, however, the Minutes did reveal that some participants favoured or could have favoured 25-basis point hike.
Going forward, expectations have been set and increased after the Minutes release. Also, the Fed RateWatch Tool is currently showing an 80 plus percent chance of a rate hike later this month.
The FED Minutes also had some very interesting comments from FED members, despite the rather muted reaction from financial markets initially.
FED members said, “that we could see a rate hike this month hose favouring hike noted tight labour market, stronger economic momentum and little evidence of inflation on path to 2%”.
On the economy, central bank members noted that “Fed staff saw mild recession likely to start later this year” and “a few participants noted that their District contacts reported less difficulty in hiring and retaining workers, lower turnover rates, and some layoffs.”
It was noteworthy that almost all participants judged it appropriate or acceptable to leave rates unchanged, and a few participants noted potential for upward pressure on money market rates as Treasury increased bill issuance.
On inflation “Almost all participants stated that upside risks to inflation might become unanchored” and “The staff’s inflation forecast was little revised relative to the previous projection with inflation at 3.0% this year, with core inflation at 3.7%.”
On balance, the staff saw the risks around the baseline inflation forecast as tilted to the upside. A few participants pointed to upside risks to the outlook for housing services inflation associated with near-record low inventories of homes for sale, solid housing demand, and less-than-expected deceleration recently in measures of rents for leases signed by new tenants.