Federal Reserve officials stressed the need to keep their options open on future rate hikes, minutes from the central bank's May policy meeting indicated Wednesday, but hinted that if the economy performs as expected, further increases might not be necessary.
The minutes, taken from the Fed's policy meeting that ended on May 3, reflect the broad strokes of the central bank's statement, as well as comments from Chairman Jerome Powell, that followed its tenth consecutive rate hike. That increase lifted the Fed Funds benchmark to a range of 5% to 5.25%, the highest since 2007.
Powell noted at the time that a change in the Fed's statement language, which stated a preference for "determining" whether additional rate hikes will be needed as opposed to to its previous communications that said "some additional policy firming may be appropriate", thanks in part to the ongoing easing of consumer price pressures.
Data from the Commerce Department earlier this month showed inflation falling below the 5% mark for the first time in two years, with CPI pegged at an annualized rate of 4.9%. So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.4% on the month and 5.5% on the year, the report noted, with both readings matching Wall Street forecasts.
"Participants generally expressed uncertainty about how much more policy tightening may be appropriate,: the Minutes read. "Many participants focused on the need to retain optionality after this meeting. Some participants commented that, based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings."
"Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary," the Minutes also noted.
U.S. stocks extended declines following the release of the minutes at 2:00 pm Eastern time, with the Dow Jones Industrial Average down 265 points on the session and the S&P 500 falling 35 points.
Benchmark 10-year note yields eased lower, to 3.715%, while 2-year notes were pegged 1 basis points higher at 4.359%. The dollar index, which tracks the greenback against a basket of six global currencies, was up 0.35% to 103.850.
The CME Group's FedWatch now indicates a 34.2% chance of a 25 basis point hike in June, up from 28.1% at the close of trading yesterday, with best largely split on a 'terminal' Fed Funds rate of either 4.75% to 5% or 5% to 5.25% in early autumn.
