Minutes of the May 2 FOMC meeting minutes
- Modest inflation overshoot 'could be helpful'
- Most felt it would 'soon be appropriate' to hike should outlook remain intact
- Trade raised a 'particularly wide' range of risks
- A few noted that Fed funds could reach neutral level 'before too long' if rate increases continued
- Some noted it may soon be appropriate to change guidance
- Many saw little evidence of overheating of labor market with wage pressures 'still moderate'
- A few cautioned that inflation expectations remained somewhat low
- Most viewed firming of inflation as providing 'reassurance' that 2% would be reached
- Some officials saw forward-guidance revisions appropriate soon
- On the yield curve 'A few' noted it's a less reliable economic signal, while 'several' thought it remains important to watch as a recession warning
The market is fully expecting a June hike and these minutes confirm it. Beyond that it remains murky but with a solidly-hawkish bent.
The tough question at the moment is 'what happens if inflation heats up a bit?' Will the Fed let it run? These minutes suggest that the answer is 'yes' but to what point? I'm not sure we know the answer.
On net, if they will let it rise above 2% without acting, that's dovish and that's why the US dollar is a bit lower on the headlines.
--------------------------------------------------
