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As expected, the Federal Open Market Committee (FOMC) kept interest rates on hold at 5.25-5.50% during their May meeting.
At the time, members also agreed to slow down the pace at which it is reducing bond holdings on their balance sheet, slightly loosening monetary policy in effect.
But the meeting minutes printed this week also noted the members’ concerns that while inflation is still expected to return to 2% over the medium term, the disinflation process would likely take longer than previously thought.
The May meeting minutes detailed that:
- The expected pace of disinflation was slower than in the March projection
- Recent data “had not increased their confidence” that inflation is heading toward their 2% target
- Recent increases in inflation had been “broad based” and therefore should not be overly discounted.
- Members are uncertain about the “degree of restrictiveness” of high interest rates, noting that “high interest rates may be having smaller effects than in the past” or that “the level of potential output may be lower than estimated.”
- Inflation risks are tilted to the upside, reflecting potential supply disruptions and unexpectedly persistent inflation dynamics
- Growth risks are skewed to the downside, as deteriorating household financial positions “might prove to be a larger drag on activity” than the staff anticipated
Link to official FOMC meeting minutes for May 2024
The document also revealed that “Various participants mentioned a willingness to tighten policy further” though Powell had downplayed the possibility as “unlikely” in his presser earlier this month.
Market Reactions
U.S. dollar vs. Major Currencies: 5-min
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar, which saw broad weakness following the release of weaker-than-expected U.S. existing home sales, started recovering from its session lows about an hour before the FOMC meeting minutes release.
The Greenback received an extra boost when the Fed dropped its hawkish report and USD gained new ground especially against counterparts like AUD and NZD.
USD failed to extend its bullish momentum, however. The dollar started retracing some of its gains about an hour after the meeting minutes release, and capped the day below its pre-report levels against NZD and juuuust kept its gains against AUD and GBP.
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