FOMC minutes secure market's expectations for a June rate hike of 25bps

The minutes from the Federal Reserve’s May 1st-2nd meeting monetary policy meeting have been published, revealing that the Committee discussed their outlook for the economy and rates, where all agreed on the inflation target should be met in coming months.

Subsequently, in a risk-off marketplace at the moment, (JPY well bid), where US stocks have been unable to get off the floor in any meaningful or sustained correction,  on the knee-jerk, however, the DJIA rallied while the S&P 500 also popped, robust against the daily declines.

The dollar is steady at 94.18, while the 2-year treasury 2.559%, The VIX is at 13.53. Gold is also slightly higher.

Key notes from the minutes:

• Modest inflation overshoot 'could be helpful'
• Most felt it would 'soon be appropriate' to hike should outlook remain intact
• Trade raised a 'particularly wide' range of risks
• A few noted that Fed funds could reach neutral level 'before too long' if rate increases continued
• Some noted it may soon be appropriate to change guidance
• Many saw little evidence of overheating of labor market with wage pressures 'still moderate'
• A few cautioned that inflation expectations remained somewhat low
• Most viewed firming of inflation as providing 'reassurance' that 2% would be reached
• Some officials saw forward-guidance revisions appropriate soon

Key quotes from the FOMC Minutes:

Voting for this action: Jerome H. Powell, William C. Dudley, Thomas I. Barkin, Raphael W. Bostic, Lael Brainard, Loretta J. Mester, Randal K. Quarles, and John C. Williams. Voting against this action: None.

"In their discussion of the economic situation and the outlook, meeting participants agreed that information received since the FOMC met in March indicated that the labor market had continued to strengthen and that economic activity had been rising at a moderate rate."

"Participants viewed recent readings on spending, employment, and inflation as suggesting little change, on balance, in their assessments of the economic outlook."

"The information reviewed for the May 1–2 meeting indicated that labor market conditions continued to strengthen in the first quarter, while real gross domestic product (GDP) rose at a moderate pace. Consumer price inflation, as measured by the 12‐month percentage change in the price index for personal consumption expenditures (PCE), was 2 percent in March. Survey‐ based measures of longer-run inflation expectations were, on balance, little changed."

“Modestly above 2 percent would be consistent with the committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations,..."it would likely soon be appropriate for the Committee to take another step in removing policy accommodation".

"The FOMC’s decision to raise the target range for the federal funds rate 25 basis points at the March meeting was widely anticipated. Market reaction to the release of the March FOMC minutes later in the intermeeting period was minimal. The probability of an increase in the target range for the federal funds rate occurring at the May FOMC meeting, as implied by quotes on federal funds futures contracts, remained close to zero; the probability of an increase at the June FOMC meeting rose to about 90 percent by the end of the intermeeting period. Expected levels of the federal funds rate at the end of 2019 and 2020 implied by OIS rates rose modestly."

Related articles and previous Fed chatter

• Fed members sounding curiously cautious - Westpac
• US: Fed on track to hike three more times this year – Deutsche Bank
• Fed's Bostic: rate hikes this year is the correct path
• Fed’s Bullard: need to see upside surprises to support further hikes - Bloomberg TV
• Fed's Bullard: inflation expectations are beginning to firm up
• Fed's Mester: US economy near Fed's goals
• Federal Reserve's Harker: no rush to raise interest rates
• US Fed's Kashkari: slack might still be in economy

About the FOMC minutes

FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.