FOMC Minutes: Tackling Inflation & Predicting Future Monetary Policy
By The Federal Open Market Committee (FOMC) opted to raise its benchmark interest rate by 0.25 percentage point, to a target range of 4.50% to 4.75%, at its most recent Jan. 31-Feb.[0] One[1] This followed six consecutive larger increases of 0.50 or 0.75 percentage point, and marked the smallest hike since the first of this tightening cycle in March 2022.[2] The move stoked markets, as traders predicted a coming end to the Fed’s tightening campaign.[1]
The Federal Reserve desires to observe “significant signs of improvement in a wide range of prices” in order to be confident that inflation is on a sustained downward trajectory and to be able to reduce its interest rate levels, according to the minutes.[3] The Federal Reserve minutes revealed that some members expressed their preference for increasing the target range for the federal funds rate by 50 basis points at this meeting, or stated they could have supported such a raise.[0]
The Fed states that the labor market is still “very tight,” and that this has caused wages to increase, subsequently leading companies to pass on the higher costs to consumers in the form of higher prices.[4] The minutes showed that inflation stayed “well above” the Fed's 2% goal.[3]
Releasing the minutes from the meeting today, it was evident that the members of the Federal Open Market Committee (FOMC) concurred that it would “take some time” to restore inflation to the Federal Reserve's 2% target.[4] Analysts largely speculate that the Federal Reserve will raise the fed funds rate yet again and keep it above five percent for the remainder of the year 2023, and possibly beyond.[4]
According to Bullard, if the Federal Reserve does not get inflation under control and back down to its 2% goal this year, they may risk a repeat of the 1970s, when interest rates had to be constantly increased.[5] The US Dollar moved up on Wednesday as measured by the DXY index vs. a basket of currencies as traders get set for the Federal Open Market Committee minutes following a slew of strong economic data of late.[5]
A hawkish tone, coupled with strong US data yesterday, could see the US dollar index rise back above 104.00.[6] The market will be looking for clues about its future monetary policy.[7] As the labor market has been strong lately and inflation readings have stabilized, investors are questioning if the Fed will raise interest rates in March by 50 basis points.[7]
0. “Fed officials back ongoing rate hikes to quell above-target inflation: Fed minutes By Investing.com” Investing.com, 22 Feb. 2023, https://www.investing.com/news/economy/fed-officials-back-ongoing-rate-hikes-to-quell-abovetarget-inflation-fed-minutes-3010959
1. “Fed Officials See Peak in Interest Rates This Year, FOMC Minutes Show” Barron's, 22 Feb. 2023, https://www.barrons.com/articles/fed-meeting-minutes-release-today-b19c6099
2. “Fed Inclined Toward More Hikes to Curb Inflation, Minutes Show” Yahoo! Voices, 22 Feb. 2023, https://www.yahoo.com/now/fed-inclined-toward-more-hikes-190900835.html
3. “Fed minutes show members resolved to keep fighting inflation” CNBC, 22 Feb. 2023, https://www.cnbc.com/2023/02/22/fed-minutes-february-2023-minutes-show-fed-members-resolved-to-keep-fighting-inflation.html
4. “February Fed Minutes: Rate Hikes To Continue” Forbes, 22 Feb. 2023, https://www.forbes.com/advisor/investing/fed-minutes-fomc
5. “US Dollar gives up some ground ahead of FOMC minutes, but bulls remain in play” FXStreet, 22 Feb. 2023, https://www.fxstreet.com/news/us-dollar-gives-up-some-ground-ahead-of-fomc-minutes-but-bulls-remain-in-play-202302221843
6. “US Open: Stocks rise cautiously ahead of the FOMOC minutes” FOREX.com, 22 Feb. 2023, https://www.forex.com/en/market-analysis/latest-research/us-open-stocks-rise-cautiously-ahead-of-the-fomoc-minutes
7. “FOMC Minutes Preview: Data Dependency Is The Disaster-In-Making” Seeking Alpha, 21 Feb. 2023, https://seekingalpha.com/article/4580306-fomc-minutes-preview-data-dependency-disaster-making
