Fed minutes show strong commitment to 0.50% rate hikes in June, July

·3 min read

The Federal Reserve made a strong commitment to 0.50% moves in June and July, according to minutes from the central bank’s May meeting released Wednesday afternoon.

On May 4, policymakers raised short-term interest rates by 0.50% to a target range between 0.75% and 1.00% in a bid to lower inflation. Higher interest rates make it more expensive to borrow, which should in theory depress the consumption that is enabling companies to raise prices.

But the meeting minutes outline a strong agreement among Fed officials for further 0.50% moves after at least the next two meetings, which are scheduled for June 14-15 and July 26-27.

“Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings,” read the minutes from the May 3-4 meeting.

The Fed is not often so direct about what it will do in future meetings, as the institution often prioritizes flexibility to alter the course of its policy as data changes. But with inflation currently at levels not seen since the early 1980s, the Fed has been more willing to offer public guidance on its intentions to further raise rates.

Following the May 4 rate hike, Fed Chairman Jay Powell told the press that there was a “broad sense” on the committee that further 0.50% moves “should be on the table” for the next two meetings.

Fed presidents that spoke to Yahoo Finance earlier this month appeared to be part of that “broad” support.

Cleveland Fed President Loretta Mester told Yahoo Finance on May 10 she would be “comfortable” with that strategy, and Atlanta Fed President Raphael Bostic said the same day he could see 0.50% moves for the “next two, or perhaps three, meetings.”

St. Louis Fed President James Bullard — who once entertained the possibility of a 0.75% move — told Yahoo Finance May 11 that his colleagues had “coalesced” around that plan for two 0.50% moves.

The Fed minutes note that Fed officials would have to continue raising rates beyond estimates for the neutral rate of interest, defined as the level of interest rates economists feel is neither stimulative nor restrictive to economic growth. This estimate implies rates will rise above 2.5% at some point during this cycle.

“Participants agreed that the economic outlook was highly uncertain and that policy decisions should be data dependent,” the Fed minutes added as a caveat.

Inflation remained the pressing concern for Fed officials, which was complicated by the Russian invasion of Ukraine and the COVID-related shutdowns in China. Both events are leading to disruptions in the global supply chain that have, in part, boosted prices. Fed officials said that those pressures could ease at some point, but the timing and magnitude would be “uncertain.”

The minutes note that all policymakers on the committee supported the 0.50% move in May, in addition to the plan to begin shrinking the Fed’s $9 trillion balance sheet beginning June 1.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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