FOMC Minutes Suggest Delay in Interest Rate Cuts... "Some Mentioned Hikes" (Summary)

May FOMC Minutes Released
Indicating Prolonged High Interest Rates Amid Q1 Inflation Concerns

Officials of the U.S. Federal Reserve (Fed) agreed at the May Federal Open Market Committee (FOMC) meeting that due to growing inflation concerns, interest rates need to be maintained at the current level longer than initially expected. This suggests that the current rates may not be restrictive enough to bring inflation down to the Fed's 2% target, indicating a delay in rate cuts. Some officials even mentioned the possibility of raising rates depending on the situation.

According to the minutes of the May FOMC released by the Fed on the 22nd (local time), participants expressed significant concerns about the timing of monetary policy easing as inflation showed strength in the first quarter of this year.

The minutes stated, "Participants were disappointed by the first-quarter inflation figures" and "It appears it will take longer than previously expected to gain greater confidence that inflation is moving steadily toward 2%."

The minutes noted that while inflation had eased over the past year, there was a lack of further progress toward the 2% target in recent months. They also expressed concerns about price increases due to geopolitical impacts and the pressure inflation places on low-wage consumers.

In particular, Fed officials continued discussions on whether the current monetary policy is sufficiently restrictive. Overall, they viewed the current rates as restrictive but pointed out that the effect of high rates might be smaller than in the past or that the neutral rate could be higher than previously expected.

Some Fed officials even mentioned the possibility of raising rates. The minutes said, "Many participants noted uncertainty about the degree of restrictiveness," and some "mentioned a willingness to further tighten policy if such action is appropriate should inflation risks materialize." Thus, some FOMC participants raised the possibility of rate hikes. However, Fed Chair Jerome Powell dismissed the prospect of rate hikes at a press conference held immediately after the May 1 FOMC meeting, saying the possibility was "very low."

The May FOMC meeting, whose minutes were released this time, was held after the U.S. Consumer Price Index (CPI) exceeded expectations for three consecutive months. Subsequently released April core CPI rose 3.4% year-over-year, marking the lowest level in three years. However, the Fed's stance is that more data is needed to confirm a sustained slowdown in inflation.

The day before, Fed officials reaffirmed their existing position that inflation's slowdown must be further confirmed before any rate cuts. Fed Governor Christopher Waller said that before lowering rates, inflation data supporting such a move must be confirmed "for several months." However, he ruled out the possibility of additional rate hikes. Raphael Bostic, President of the Federal Reserve Bank of Atlanta, said, "It is better to wait longer before cutting rates to prevent inflation from rebounding," adding, "If inflation is expected to decline relatively slowly, rate cuts should not be expected before the fourth quarter."

As the Fed effectively signaled a delay in rate cuts, the New York stock market closed lower across the board. On the New York Stock Exchange (NYSE) that day, the blue-chip Dow Jones Industrial Average fell 0.51% from the previous trading day. The large-cap S&P 500 index dropped 0.27%, and the tech-heavy Nasdaq index declined 0.18%.