Federal Reserve Meeting Minutes: Some officials support a rate hike in June, almost all believe that it is appropriate to raise rates again this year, and several individuals advocate for further slowing down.

Minutes of the Federal Reserve meeting showed that although most Fed policymakers supported holding rates steady after ten consecutive rate hikes, some policymakers leaned towards further rate increases. Overall, policymakers believed that it was appropriate to continue raising rates this year, while some believed that it was suitable to slow down the pace of rate hikes.

Nick Timiraos, known as the "Fed's mouthpiece" and the "new Fed news agency," specifically mentioned that some officials supported another rate hike in June, citing the resilience of inflation and economic activity as the reasons for their support.

The minutes of the Federal Open Market Committee (FOMC) meeting, which ended on June 14th, were released. All voting members of the FOMC unanimously agreed to keep the policy rate unchanged and sent a strong hawkish signal. The dot plot showed that two-thirds of Fed officials expected rates to be above 5.5% this year, implying at least two 25 basis point rate hikes within the year. Fed officials raised the median expectation for the peak level of rates by 50 basis points to 5.6% in their economic projections, higher than the expectations of economists and investors.

The minutes of the meeting, released on Wednesday, July 5th, Eastern Time, revealed that during the June FOMC meeting, all participants continued to expect that a restrictive monetary policy stance would be appropriate to achieve the Fed's inflation target. The minutes stated:

"Almost all participants indicated in their economic projections that it would be appropriate to raise the target range for the federal funds rate during 2023. Most participants noted that the uncertainty surrounding the economic and inflation outlooks remained elevated and that additional information would be valuable for assessing the appropriate stance of monetary policy."

Many participants also pointed out that after last year's rapid tightening of monetary policy, the FOMC had slowed down the pace of tightening. They believed that it was appropriate to further slow down the pace of policy tightening in order to provide more time to observe the cumulative effects of tightening and evaluate its impact on policy.

The minutes stated that participants agreed to make policy decisions at each meeting based on all the information received and its implications for the economic outlook and the balance of risks. They also emphasized the importance of communicating the Fed's reliance on data to the public.

Almost all policymakers believe it is appropriate to hold rates steady in June, some support a 25 basis point rate hike

The minutes revealed some internal divisions within the Federal Reserve when considering the decisions made at the previous month's meeting.

Participants at the meeting believed that inflation remained well above the Fed's long-term target of 2%, economic activity continued to expand moderately, the labor market remained tight, and the unemployment rate remained low. However, the extent to which these factors would be affected by tightening credit conditions remained uncertain. Against this backdrop, "almost all participants" judged that it was appropriate to maintain the current interest rate.

Most participants believe that keeping the June meeting unchanged gives them more time to assess the progress made in achieving the dual mandate of full employment and inflation by the Federal Reserve.

"Some" participants suggested that they supported a 25 basis point rate hike in June, or could have supported such a proposal. Participants who supported a 25 basis point rate hike pointed out that the labor market is still very tight, economic activity is stronger than previously expected, and there are almost no clear signs that inflation will return to the FOMC's 2% target over time.

Concerns about sustained high inflation and weak commercial real estate are monitoring whether tightening bank-related credit conditions will drag down the economy.

In the June meeting statement, the Federal Reserve reiterated that the banking system is resilient and the impact of tightening credit conditions on inflation is uncertain. The minutes showed that at the June meeting, participants discussed some considerations from a risk management perspective that could affect future decisions.

"Almost all" participants stated that the upward risks to inflation prospects, or the possibility of sustained high inflation leading to a decoupling of inflation expectations, are still key factors affecting the policy outlook, as inflation remains well above the FOMC's long-term target and the labor market remains tight.

The minutes pointed out that the U.S. economy has recently shown resilience and the labor market remains strong, but some participants commented that there are downside risks to economic growth and upside risks to the unemployment rate. While pressures on the banking industry have eased somewhat, some participants believe that it is crucial to monitor whether the development of the banking industry will further tighten credit conditions and drag down economic activity. Some participants also expressed concerns about the potential risks posed by weak commercial real estate.

Participants generally believe that the existing monetary tightening and the possible further tightening of credit conditions stemming from the banking industry have high uncertainty in their impact on the economy. Participants pointed out that the full impact of monetary tightening may not have been fully realized, but several people believe that most of the impact of past tightening has already been exerted.

Regarding the downside risks to economic activity, participants pointed out that the cumulative and rapid tightening of monetary policy may ultimately have a greater impact on economic activity than expected, and the additional impact of tightening bank credit conditions may be larger than expected.

Regarding inflation risks, due to inflation still being well above the Federal Reserve's long-term target, some participants mentioned that long-term inflation expectations may become unstable, especially when consumer demand is stronger than expected and the labor market remains tight. Several participants noted that tightening credit conditions may have a lagging effect, which could slow down economic activity and alleviate inflationary pressures.

Staff still expect that the impact of the banking industry will lead to a mild economic downturn this year, but the likelihood of avoiding a recession is almost equal to that of a recession.

The economic outlook released after the June meeting showed that Federal Reserve officials expect the U.S. economy to avoid a recession this year. They raised their GDP growth forecast for this year by more than double to 1%, while slightly lowering their unemployment rate forecast for the next three years and slightly lowering their PCE inflation forecast for this year while raising their core PCE inflation forecast for this year. And the minutes of this meeting showed that, at the June meeting, the Federal Reserve staff, like the previous two meetings in March and May, still expected a mild economic recession to occur this year. The minutes reiterated the wording of the May minutes, stating:

"Under the already tight financial conditions, the impact of further tightening in the bank credit environment is expected to lead to a mild recession starting later this year, followed by a moderate pace of recovery."

The minutes stated that Federal Reserve staff expected real GDP to slow down in this quarter and the next quarter, and then to decline slightly in the fourth quarter of this year and the first quarter of next year. It is expected that the actual GDP growth in 2024 and 2025 will be lower than the staff's projected potential output growth. These forecasts are consistent with the comments in the May minutes.

Unlike in May, the Federal Reserve staff pointed out in this meeting that due to the strength of the labor market and consumer spending, the possibility of a downturn in the US economy, as well as the possibility of a mild recession, is almost equal.

"Given the continued strength of the labor market and the resilience of consumer spending, the staff believes that the economy may continue to grow slowly and avoid an economic recession, with the possibility being almost the same as the baseline (forecast) for a mild recession."

In terms of inflation, the staff expects PCE price inflation to be 3.0% this year, and core PCE inflation to be 3.7%, slightly lower than the respective expectations of 3.1% and 3.8% at the May meeting. They believe that with the further decline in consumer energy prices and the further slowdown in food price inflation this year and next year, overall inflation is expected to be lower than core inflation. In 2025, both overall PCE and core PCE inflation are expected to be close to the Fed's target of 2%.

Issuance of Treasury Bonds by the Treasury Department may put short-term upward pressure on money market interest rates

The minutes of the previous monetary policy meeting announced in May showed that some Federal Reserve policymakers were concerned at the time that failure by Congress to promptly raise the federal government's debt ceiling could severely disrupt the financial system and tighten financial conditions, thereby weakening the economy.

In the minutes of this meeting, several participants pointed out that the resolution to suspend the debt ceiling by Congress eliminated a major source of uncertainty for the economic outlook.

A few participants pointed out that after the danger of the debt ceiling was eliminated, with the issuance of more bonds by the U.S. Treasury to meet expenditures and restore the balance of the Treasury General Account (TGA) to the level favored by the Treasury Department, money market interest rates may face some upward pressure in the short term. These participants believe that the upward pressure on money market interest rates compared to the overnight reverse repurchase (ON RRP) tool rate of the Federal Reserve may lead to a decrease in the usage of this Fed tool.