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MNI: Fed Minutes Show Split FOMC On Continued Rate Hikes

Federal Reserve officials were split at their early May meeting in whether it would soon be appropriate to pause its interest rate increases, while almost all participants 
commented that downside risks to growth and upside risks to unemployment had increased, according to minutes from the meeting released Wednesday.
"Many participants focused on the need to  retain optionality after this meeting," the FOMC meeting minutes said. 
"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," the minutes said. "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."
Against that backdrop, "all" FOMC members reaffirmed their strong commitment to return inflation to 2%, the minutes said. 

Fed officials agreed that inflation was "unacceptably high" and officials noted that the labor market remained very tight although they noted some signs that the imbalance of supply and demand in the labor market was easing. 
Participants judged that risks to the outlook for economic activity were weighted to the downside, although a few noted the risks were two sided, the minutes said. 
Some officials cited concerns the debt ceiling would not be raised in a timely manner, and a number of them emphasized the Fed "should maintain readiness to use its liquidity tools," the minutes said. 
The minutes also revealed Fed staff continue to forecast a mild recession starting later this year, followed by a moderately paced recovery. 
"The staff’s core inflation forecast was revised up a little relative to the previous projection," the report said. "On a four-quarter change basis, total PCE price inflation was projected to be 3.1 percent this year, with core inflation at 3.8 percent."
U.S. inflation has been coming down gradually but remains more than the central bank's target. The CPI rose 4.9% in the year to April while the Fed's preferred core PCE measure climbed 4.6% in the year to March. 
The central bank raised interest rates aggressively over the last year, including an unprecedented string of four consecutive 75 basis point rate hikes. The Fed in May raised borrowing costs by another 25 basis points to a range of 5% to 5.25%. Fed officials have appeared divided on the need to hike in June. 
Since the May meeting, Chair Jerome Powell has hinted that the Fed may pause raising interest rates next month and New York Fed President John Williams last week noted long-term downside risks to neutral interest rates. 
Fed Governor and Vice Chair nominee Philip Jefferson has said the central bank should be ready to react to a wide range of economic conditions with respect to inflation, unemployment, economic growth, and financial stability.
MNI Washington Bureau | +1 202-371-2121 |
MNI Washington Bureau | +1 202-371-2121 |

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