Fed Mentioning 'Inflation' 60 Times, Signals Additional 'Big Step'... "Tightening Appropriate"

[Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The U.S. central bank, the Federal Reserve (Fed), has signaled that it will raise the benchmark interest rate by 0.5 percentage points in several more 'big steps.' It also confirmed the need for a faster rate hike than the market expected.

According to the minutes of the May Federal Open Market Committee (FOMC) regular meeting released by the Fed on the 25th (local time), the majority of attendees judged that "a 0.5 percentage point increase would be appropriate in the next two or so meetings." They also assessed that "a tightening policy stance will be appropriate depending on the evolving economic outlook and risks."

This indicates that big steps may continue at the June and July FOMC regular meetings. Earlier, at the meeting held on June 3-4, the Fed raised rates by 0.5 percentage points for the first time in 22 years and decided to begin reducing its balance sheet starting June 1. At that time, Fed Chair Jerome Powell also revealed that there had been internal discussions about the need for additional big steps.

In particular, the May minutes mentioned the word 'inflation' 60 times, reflecting the Fed's concerns as a self-proclaimed 'inflation fighter.' U.S. inflation has recently remained at the highest level in over 40 years. The prolonged Ukraine war and China's COVID-19 lockdowns were pointed out as factors that could further worsen inflation.

The minutes stated, "All attendees reaffirmed their strong determination and will to take the necessary measures to restore price stability," and "attendees agreed that monetary policy stance should be shifted to neutral quickly by raising rates and reducing the balance sheet."

The market expects the policy rate to rise to around 2.5-2.75% by the end of this year. Economic media CNBC reported, "This aligns with what many Fed officials consider the neutral rate," but added, "However, the content of the minutes shows that the Fed may be ready to go beyond that."

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market is reflecting more than a 90% chance of a big step in June.