FOMC Minutes: Shows officials are split on support for more hikes, Participants generally agreed extent to which further interest rate hikes may be appropriate had become less certain, many focused on the need to retain optionality after the May meeting

Policy Outlook

• Participants generally expressed uncertainty about how much more policy tightening may be appropriate.


• Several participants said if economy evolved along lines of their outlooks, further policy firming might not be needed.


• Some participants commented that, based on their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings


• Some participants stressed it was 'crucial' that policy statement not signal likelihood of rate cuts this year or rule out further hikes.


• Participants generally noted the importance of closely monitoring incoming information and its implications for the economic outlook.


• Participants emphasized the importance of communicating to the public the data-dependent approach.

Banking

• Participants judged banking sector stress would likely weigh on economic activity but to an uncertain extent.


• Participants noted that risks associated with the recent banking stress had led them to raise their already high assessment of uncertainty around their economic outlooks.


• Banking sector is sound and resilient.


• A number of participants noted that the banking sector was well capitalized overall, and that the most significant issues in the banking system appeared to be limited to a small number of banks with poor risk-management practices or substantial exposure to specific vulnerabilities.

Debt limit

• Some participants noted concerns federal debt limit may not be raised in timely manner, threatening significant financial system disruptions, tighter financial conditions.

Economic Activity

• Participants agreed that inflation was unacceptably high and declining slower than they had expected.


• Upside risks to the inflation outlook remained a key factor shaping the policy outlook.


• A few participants noted that they also saw some downside risks to inflation.


• Participants judged that risks to the outlook for economic activity were weighted to the downside, al­though a few noted the risks were two sided.


• A few assessed that there were upside risks to economic growth.


• Almost all participants commented that downside risks to growth and upside risks to unemployment had increased because of the possibility that banking-sector developments could lead to further tightening of credit conditions and weigh on economic activity.


• Participants noted that the labor market remained very tight, with robust payroll gains in March and an unemployment rate near historically low levels.


• Nevertheless, they noted some signs that the imbalance of supply and demand in the labor market was easing, with prime-age labor force participation returning to its pre-pandemic level and further reductions in the rates of job openings and quits.

 Staff Economic Outlook

• Continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery.

via Federal Reserve

Reaction details (19:47)

• Little immediate reaction was seen, although as the dust settled and the minutes digested, better buying was seen in USTs, with T-Notes (M3) rising from 113-12 to 113-18 just over 30 minutes later, with the front end doing the work as the 2s10s spread steepened from -63.5bps to -61bps.


• The rate moves saw some marginal Dollar weakening via the Yen channel.


• Stocks are largely where they were pre-release.

24 May 2023 - 19:00- Fixed IncomeData- Source: Newswires