Fed Minutes Point To Uncertainty About Interest Rate Outlook

The Federal Reserve released the minutes of its May monetary policy meeting on Wednesday, indicating uncertainty about the outlook for interest rates.

The minutes revealed 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 rate hikes may be appropriate had become “less certain.”

Some participants felt additional rate increases would likely to be warranted at future meetings due to expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow.

Meanwhile, several others noted that if the economy evolved along the lines of their current outlooks, then further rate hikes may not be necessary.

“In light of the prominent risks to the Committee’s objectives with respect to both maximum employment and price stability, participants generally noted the importance of closely monitoring incoming information and its implications for the economic outlook,” the Fed said.

Following the meeting in early May, the Fed announced its widely expected decision to raise interest rates by another quarter point.

The Fed decided to raise the target range for the federal funds rate by 25 basis points to 5 to 5.25 percent, making the tenth straight rate hike.

However, changes to the language of the accompanying statement led to expectations that the Fed will pause its rate hikes at the next meeting in June.

The next monetary policy meeting is scheduled for June 13-14, with CME Group’s FedWatch Tool currently indicating a 70.5 percent chance the Fed will leave rates unchanged.

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