Federal Reserve Minutes Show Support for Further Rate Hikes, Markets React

Today, the Federal Reserve released the minutes from its January 31-February 1 meeting, indicating that members near unanimously anticipate a further rate hike in the coming months.[0] The notes also revealed that some members of the monetary policy committee favored hiking rates by 50 basis points, instead of the 25 basis points that the Fed eventually decided on.[1]

At the gathering, the Federal Reserve increased their primary rate by 25 points to a span of 4.5% to 4.75%.[2] Only a “few” Fed officials wanted a 50 basis point move, as Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard have already said they were in that small camp.[3] The Federal Reserve brought the federal funds rate to a target range of 4.5%-4.75%.[4]

The minutes showed that a number of officials were concerned that the policy stance may not be restrictive enough for the current economic conditions and could halt recent progress in moderating inflationary pressures.[3] On Wednesday morning, James Bullard, the President of the St. Louis Federal Reserve, stated on a CNBC television interview that the Fed must raise the federal funds rate to a range of 5.25% to 5.5% in order to reduce inflation to its 2% target.[5]

The minutes indicated that inflation was “well above” the Federal Reserve’s 2% objective.[0] Labor markets staying very tight resulted in ongoing increases in wages and prices.[6] The Federal Reserve stated that a lot more evidence needs to be seen, regarding a lower price range, in order to be certain that inflation is continuing to go down. This would allow them to decrease interest rates, as stated in the minutes.[7]

At the end of the day, the Nasdaq Composite was 0.1% higher at 11,507, the S&P 500 decreased by 0.2% to 3,991, and the Dow Jones Industrial Average dropped 0.3% to 33,045.[8] The yield on 10-year Treasuries declined three basis points to 3.92%.[9]

Investors lifted expectations for where rates will peak to around 5.36%, suggesting that if multiple FOMC members considered a 50 basis point hike, there’s a serious chance the Fed actually follows through on ramping up the rate hikes in March.[1] Markets will be closely watching the upcoming CPI report to see if the Fed needs to move faster in its rate hike cycle to keep inflation under control.

0. “Federal Reserve minutes were released today, “But Wait There’s More” | Kitco News” Kitco NEWS, 22 Feb. 2023, https://www.kitco.com/commentaries/2023-02-22/Federal-Reserve-minutes-were-released-today-But-Wait-There-s-More.html

1. “FOMC members wanted the Fed to hike rates by 50 basis points last month” Washington Examiner, 22 Feb. 2023, https://www.washingtonexaminer.com/opinion/fomc-members-wanted-the-fed-to-hike-rates-by-50-basis-points-last-month

2. “Fed Officials See Peak in Interest Rates This Year, FOMC Minutes Show” Barron’s, 22 Feb. 2023, https://www.barrons.com/articles/fed-meeting-minutes-release-today-b19c6099

3. “Fed minutes show some officials thought easing of financial conditions could necessitate tighter monetary policy” MarketWatch, 22 Feb. 2023, https://www.marketwatch.com/story/fed-minutes-show-some-officials-thought-easier-financial-conditions-could-mean-tighter-monetary-policy-bf431e25

4. “Fed minutes show members resolved to keep fighting inflation with rate hikes” CNBC, 22 Feb. 2023, https://www.cnbc.com/2023/02/22/fed-minutes-february-2023-minutes-show-fed-members-resolved-to-keep-fighting-inflation.html

5. “Stock market news today: S&P 500, Dow fall after Fed minutes signal continued rate hikes” Yahoo News, 22 Feb. 2023, https://news.yahoo.com/stock-market-news-today-february-22-2023-120842564.html

6. “February Fed Minutes: Rate Hikes To Continue” Forbes, 22 Feb. 2023, https://www.forbes.com/advisor/investing/fed-minutes-fomc

7. “Fed officials back ongoing rate hikes to quell above-target inflation: Fed minutes By Investing.com” Investing.com, 22 Feb. 2023, https://www.investing.com/news/economy/fed-officials-back-ongoing-rate-hikes-to-quell-abovetarget-inflation-fed-minutes-3010959

8. “Stock Market Today: Stocks End Mixed After Fed Minutes” Kiplinger’s Personal Finance, 22 Feb. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-022223-stocks-end-mixed-after-fed-minutes

9. “US Futures, Treasuries Advance Before Fed Minutes: Markets Wrap” Yahoo! Voices, 22 Feb. 2023, https://www.yahoo.com/now/asia-stocks-us-shares-lower-223133948.html