Path for future hikes less certain amid banking crisis: Fed minutes By Investing.com

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Investing.com — Federal Reserve officials “generally agreed” that future rate hikes were less certain and preferred to keep policy flexible as inflation continues to run above trend and the impact from the banking crisis remains uncertain, according to the Fed minutes of its May 2-3 meeting showed on Wednesday. 

In discussing the policy outlook, participants generally agreed that in light of the lagged effects of cumulative tightening in monetary policy and the potential effects on the economy of a further tightening in credit conditions, the extent to which additional increases in the target range may be appropriate after this meeting had become less certain,” the Fed minutes showed. 

Following its previous May 2- 3 meeting, the Federal Open Market Committee lifted its benchmark rate to a range of 5% to 5.25%, and teed up the prospect of a pause by removing previous language in its monetary policy statement that suggested that “some additional policy firming may be appropriate.”

In his press conference following the monetary policy statement, Federal Reserve Chairman Jerome Powell said the tweak in language marked a “meaningful change,” though stopped short of directly calling for a pause.

In the weeks after the decision, however, Powell has signaled that inflation remains too hot to rule out a hike next month, though added that the cumulative impact of the rate hikes delivered so far and the potential of the banking crisis to tighten lending standards need to be considered in future rate decisions.

Inflation is “far above” the Fed’s target, Powell said at a Fed research conference on May 19. but added that policymakers “haven’t made any decisions” about whether to lift rates at their next meeting in June.

Many fed members express the need to maintain a flexible policy options to respond to incoming data. 

“Many participants focused on the need to retain optionality after this meeting. 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,” the minutes showed.

But “several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” according to the minutes.

Hawkish leaning members of the Fed, meanwhile, have been vocal in recent days about the need to continue with hikes.

St. Louis Fed President James Bullard said he expects the central bank will need to lift interest rates twice more this year to stymie inflation.

“I’m thinking two more moves this year – exactly where those would be this year I don’t know – but I’ve often advocated sooner rather than later,” Bullard told an American Gas Association financial forum earlier this week.

The odds of a June pause continue to tick lower, standing at 65% from 67% last week, according to Investing.com’s the Fed rate monitor tool.