MNI: Some Fed Officials Wanted June 25 BP Hike - Minutes

Almost all Federal Reserve policymakers agree further interest rate hikes will likely be needed this year, and some even wanted to raise them in June despite ultimately deciding unanimously to hold steady for the first time since March 2022, according to minutes from the central bank's late released Wednesday.

"Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate," the report said.

“Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal.”

The Fed last month kept rates in a 5-5.25% range but policymakers also sharply revised higher their forecasts for the peak fed funds rate to 5.6% from 5.1% in the March Summary of Economic Projections.

Fed Chair Powell has since testified to Congress that most FOMC members see additional rate hikes this year.

HAWKISH OVERTONES

“The participants favoring a 25-basis-point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the committee’s 2% objective over time,” the report said.

One factor weighing against further possible tightening is concern over possible fallout from the March banking crisis on credit markets.

Still, the minutes said FOMC participants “noted that banking stresses had receded and conditions in the banking sector were much improved since March.” Many participants cited “only a modest effect so far” on credit conditions.

The June SEP also showed lower forecasts for economic growth and higher expectations for inflation at the end of 2023, with the median projected core PCE now at 3.9% up from a 3.6% March projection. The FOMC’s view of year-end headline PCE was downgraded slightly to 3.2% from 3.3%.

Officials remain “highly attentive” to inflation risks, the minutes said. “While total inflation had moderated over the past year, core inflation had not shown a sustained easing since the beginning of the year,” the report said.

STAFF RECESSION CALL

The minutes comes after PCE data Friday showed a further pullback in the headline reading to 3.8% for May, and to 4.6% for core PCE. The trend is relieving to policymakers but the level of the core reading is still far too high for comfort.

The Fed’s staff continued to forecast a recession, in contrast with policymakers’ expectations for below-trend but still positive growth.

“The economic forecast prepared by the staff for the June FOMC meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery,” the report said.

Officials said the labor market remains tight but there are signs that the supply of and demand for workers is coming in better balance.

They said wage growth has moderated but is still running above levels that officials see as consistent with price stability.