Fed Minutes Reveal Fierce Debate Prior to June Pause — Confirms More Hikes Are Likely
Key Takeaways
- Fed minutes released on Wednesday reveal that at its June meeting, Fed officials collectively opted to pause the central bank’s most aggressive interest rate hiking campaign since the 1980s
- The minutes show that while the vote to pause was unanimous, it came after an intense debate weighing the potential pros and cons for the economy
- Fed officials have indicated the likelihood of up to two additional 25 basis point hikes this year
This Wednesday, the Federal Reserve released minutes from its latest meeting held over June 13–14. The release indicated that although most Fed officials anticipate further rate hikes, they agreed to pause its relentless hiking campaign, maintaining the federal funds rate at its current level of 5% to 5.25% while deliberating future actions.
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After some back and forth, Fed officials agree to pause in June
Some participants, according to the release, wanted to continue the Fed’s 10-meeting streak of rate hikes in June. They felt the labor market remained “very tight,” the economy remained alarmingly strong, and that there weren’t sufficient signs that inflation was meaningfully coming down.
The discourse between Fed officials boiled down, in essence, to an uncertainty around whether the Fed had already raised rates enough to tame inflation — but just needed to give it time to make its way through the economy — or whether policy needed to be tightened even further.
Despite the lack of unity among FOMC members, participants eventually voted unanimously to pause in June, allowing themselves some time to gauge the cumulative economic effects of the tighter monetary policy thus far.
What’s the economic and monetary outlook for the rest of 2023?
Zooming out and looking at the road ahead, most participants of the Fed’s June meeting acknowledged the looming economic and inflationary uncertainty. Indeed, many Fed members still predict that the U.S. will likely face a recession later this year, albeit a mild and short one.
Key inflation metrics have recently reached their lowest levels since October 2021 — however, chairman Jerome Powell reiterated last week that the fight against inflation is far from won. He emphasized that until he and the Fed are confident that inflation is on a path to its 2% target, they’re yet to entertain the notion of loosening policy.
The overwhelming majority of Fed members — 16 of its 18 — still expected that the federal funds rate would need to rise by at least another 25 basis points by the end of the year. The market seems to concur: according to the CME FedWatch Tool, it believes a 0.25% hike in July is very likely, at 88.7% at the time of writing.
The bottom line
Investors already largely expected the Fed to raise rates at its meeting later this July; the release of its June minutes simply increased the market’s confidence in it.
Whether more hikes can be expected in the meetings following July remains to be seen — however, the upcoming monthly jobs report for June, due this Friday, might provide us with some insight as the market digests its implications.
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