By Yasin Ebrahim
Investing.com – Almost all Federal Reserve policymakers backed rate hikes to resume following a pause at the June meeting, expressing concern about the strength in the labor market and "unacceptably high" elevated inflation, according to the Fed minutes of its Jun. 13-14 meeting showed on 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 Fed minutes showed.
In the weeks that followed the June meeting, Fed Chairman Jerome Powell bolstered expectations for the Fed to resume hiking, insisting that monetary policy wasn’t restrictive enough and said he wouldn’t rule out the possibility of hiking rates at consecutive meetings.
The Fed has stressed that importance of allowing the pace of tightening seen so far to filter through the economy and curb inflation, but several fed members touted "the possibility that much of the effect of past monetary policy tightening may have already been realized," the minutes showed, signaling the need for further rate hikes.
At the conclusion of its previous meeting on Jun. 14, the Federal Open Market Committee kept its benchmark rate in a range to a range of 5% to 5.25%. It was the first time the Fed left rates unchanged following 10-consecutive hikes.
At the meeting, Fed members upgraded their rate-hike forecast, estimating a terminal rate, or peak rate, of 5.6% at the midpoint in 2023, up from a prior forecast of 5.1% seen in March, suggesting two more hikes ahead.
The core personal consumption expenditures price index, the Fed’s preferred measure of inflation, was forecast to be 3.9% in 2023, up from a prior forecast of 3.6%.
With annualized inflation still running at a pace of 4.6%, Fed members agreed it was "unacceptably high," the minutes showed, as the pace of goods inflation slowed at slower pace than expected.
Markets appear to be embracing the Fed’s projections for more hikes to come, with about 86% of traders expecting the U.S. central bank to resume hiking rates at 25-26 July meeting, according to Investing.com’s Fed Rate Monitor Tool.
The United States 2-Year yield, which is sensitive to Fed policy changes, has also reflected expectations for tighter monetary policy, rising to 4.95% and closer to a 52-week high of 5.084%
Ahead of the Fed’s July 25-26, the incoming economic data, which include the June monthly jobs report due later his week and the June consumer inflation report due next week, will garner added investor attention.
The ongoing tightness in labor market continued to be a concern for the Fed as it threatens to push wages higher and keep services inflation elevated.
Labor market signals have been mixed leading into this month's report, Jeffiers says, pointing to the big job losses seen in last month’s household survey data, and a jump in initial jobless claims in the middle of June, but expects “solid” monthly payroll on Friday.
“Putting it all together, we are inclined to look through the weakness in the initial claims data, and we are expecting that the payroll data will show another solid increase, in line with the trends in recent months,” it added.