The minutes of the June meeting of the Federal Open Market Committee (FOMC) have been released, and the committee decided to keep interest rates unchanged this month, with further tightening expected later.
According to the minutes of the FOMC meeting released to the public on Wednesday, July 5, the Federal Reserve voted unanimously to keep interest rates steady.
According to the minutes of the FOMC's June meeting, the vast majority of respondents to the Open Market Desk's poll of primary dealers and market participants expected no change in interest rates at this meeting.
While the middle of the polls shows no rate increase by early 2024, the range of responses is wide. They see a good chance that follow-up discussions will lead to further tightening.
Policymakers made the decision based on concerns about economic growth, even though most members believed further rate hikes were imminent. After implementing 10 consecutive rate hikes, they saw an opportunity to skip the June meeting, citing the lag effect of policy and other concerns.
Will there be two more rate hikes before the end of the year?
Policymakers reasoned that "keeping the target range unchanged at this meeting will allow them more time to assess the economy's progress toward the Committee's maximum employment and price stability goals."
Federal Open Market Committee members expressed hesitation due to a variety of circumstances. They said that a brief pause would give the committee time to assess the impact of the rate hike, which totaled 5%, the largest since the early 1980s.
Federal Open Market Committee members also predicted that two more increases in the benchmark lending rate might be needed before the end of the year to reduce inflation.
According to the Fed's revised Summary of Economic Projections, the median forecast of FOMC members currently shows that policymakers believe the federal funds rate will reach 5.6% by the end of this year, higher than the 5.1% expected in March. This suggests that the Fed may implement two more 25 basis point rate hikes in the last four scheduled meetings of the year. According to the CME FedWatch Tool, the probability of a 25 basis point rate hike in July is currently 88.7%, with about 21 days until the next meeting.
Even though the U.S. economy has so far withstood tight monetary policy well, there are still concerns. While inflation is the main concern, some members are concerned about the state of the banking sector, given three bankruptcies earlier this year. They said a downturn in the sector could lead to tighter lending conditions.
More challenges for the Fed?
The U.S. banking system is strong and reliable. Restrictions on credit to households and businesses are expected to have consequences for employment, inflation, and economic growth. The extent of these consequences remains unknown. However, the Committee is concerned about inflation risks.
Over the longer run, the Committee's objectives are to achieve maximum employment and inflation of 2 percent. The Committee decided to maintain the target range for the federal funds rate at 5 percent to 5-1/4 percent to further achieve these objectives. The target range maintained at this meeting allows the Committee to assess incoming data and their implications for monetary policy.
The impact of the FOMC minutes release
Gold prices are under pressure due to rising U.S. Treasury yields, stronger currencies and the hawkish tone expressed in the minutes released yesterday. As of the latest trading day, the most active August gold futures contract fell $6.80 to close at $1922.70.
Not only that, Wall Street's main indexes fell slightly on Wednesday as investors analyzed the minutes of the Federal Reserve's most recent meeting and prepared for important economic data in the coming days.
Much will depend on Thursday's job openings data and the release of the official June employment report, two key data points for the U.S. this week.