Investors were expecting to hear more details today about what led Federal Reserve officials to advance plans to slow the pace of balance sheet reduction even as the central bank keeps its benchmark interest rate steady.
Here are the highlights from the minutes of the April 30-May 1 meeting, where interest rates were kept constant:
- 'Many' respondents were uncertain about the degree to which the policy would be restricted.
- 'Various' participants are willing to tighten further if necessary.
- Respondents assessed that it would take longer than previously anticipated to gain greater confidence that inflation would move sustainably towards 2%.
- Several participants said it would be helpful to begin discussions about the appropriate term structure of the Fed's portfolio over the long term.
- Nearly all respondents supported the Fed's decision to begin slowing the pace of decline in securities holdings; a few supported continuing the current pace.
- Officials are discussing keeping interest rates steady for longer if inflation does not fall.
- FED officials drew attention to the 'disappointing' inflation figures in the first quarter.
- 'Various' Fed officials have talked about raising interest rates if inflation warrants it.
- Participants noted that the future policy path will depend on incoming data, the evolving outlook and the balance of risks.
- Many participants expressed uncertainty regarding the degree of policy restrictiveness.
- Several participants spoke of a willingness to tighten policy further if the risks to the outlook materialize and make such action appropriate.
- Some officials think long-term interest rates may be higher than previously thought.
- Some officials worry that financial conditions are not restrictive enough.
- Although the economic forecast of the FED staff is similar to the March outlook, it was stated that the deterioration in the financial positions of low-income households, in particular, could pose a greater obstacle to economic activity than anticipated.
While FED officials decided to keep the federal interest rate target at 5.2-5.50%, Powell stated that the current stance is appropriately restrictive and maintains maximum flexibility and optionality.
However, Citi's Andrew Hollenhorst argued that the economic data released so far this month, including the consumer price index, which points to a welcome slowdown in inflation, and the latest comments from FED speakers make the minutes “stale” at this point.
“The slowdown in employment growth and significant declines in individual sales and industrial production since the May 1 FOMC meeting will further convince officials that growth is slowing,” Hollenhorst wrote.
*This is not investment advice.