The Meeting Minutes
Two weeks following the Fed’s recent “skip” on moving interest rates, the minutes of the meeting divulged more information that makes their short-term plan clearer. The average sentiment across all Fed officials was for more, slower-paced rate hikes throughout the year, as opposed to 2022’s fiscal policy consisting of 10 consecutive increases. However, there were areas of interest where members were divided, such as the few policymakers that initially favored a quarter-point hike last meeting. A pause was ultimately voted on, but the minutes revealed that rates may increase another two times beginning as soon as this month’s meeting. Twelve out of the eighteen Fed members envisioned these two rate increases, with the six other members forecasting one or a full pause for the year. At the current macroeconomic climate, what is most probable is a lack of rate cuts in the next four meetings scheduled for 2023.
At the current key rate of roughly 5.1%, a difficult battle lies ahead for the Federal Reserve. The road towards 2% inflation is riddled with external challenges such as tighter credit conditions, higher household debt, a problematic housing market, and more. With a forecasted mild recession in the next year, the Fed will operate a balancing act hoping to higher borrowing rates enough that inflation can subside without a deep economic trough. With the lagged impact rates can have on the economy, the Fed hopes to see strong signs of disinflation this month. In the next two days, important markers for the labor market may give a brighter picture of economic durability, hinting towards the action at the next Fed meeting on July 26th.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.