Newly released minutes of the meeting show that after data for the first three months of this year showed that inflation had grown more than expected, the Fed's monetary policy meeting, which ended at the beginning of this month, Fed policymakers feared that the decline in inflation was not progressing enough. They believed that it would take more time to be confident of cutting interest rates, and suggested that the wait-and-see state of continuing to maintain high interest rates should continue for longer. Many policymakers intend to raise interest rates further once the risk of inflation reignites.

Regarding the minutes of this meeting, reporter Nick Timiraos, known as the “New Federal Reserve News Agency,” wrote that the US inflation data for three consecutive months released as of April was disappointing, and the reduction in inflation was a setback. Therefore, Fed officials expect to wait longer to cut interest rates, and some officials are still open to raising interest rates when inflation is rising at an accelerated pace.

According to the article, the Federal Reserve officials concluded that the current high interest rates need to be maintained longer than they had anticipated. They still believe that interest rates are high enough to curb economic activity and reduce inflation, but it suggests that the extent of policy restrictions is not that certain. However, it was pointed out at the end of the article that the April inflation data released by the Federal Reserve after the meeting suggests that price pressure has not yet accelerated again, which makes people feel more at ease about the prospect that the Federal Reserve will not need to raise interest rates again.

After the monetary policy meeting on May 1, the Federal Reserve decided to keep policy interest rates high for more than 20 years.Statement of resolutionIt was added that there has been no further progress in reducing inflation in recent months, and it was once again reiterated that interest rates should be cut with greater confidence that inflation will fall to 2%. At the press conference after the meeting, the Chairman of the Federal ReservePowell saidIt will take more time than previously anticipated to gain confidence in interest rate cuts. The Federal Reserve will make decisions meeting by meeting based on data, but denies that the next step is likely to raise interest rates.

The decline in inflation took longer than previously anticipated

The minutes of the meeting released by the Federal Reserve on Wednesday May 22 EST read that when discussing the outlook for monetary policy during the meeting,

“Participants pointed out that future policy interest rate trends will depend on subsequent data, changing prospects, and risk balance.”

“Participants pointed out that the inflation data for the first quarter was disappointing. Various indicators showed strong economic growth momentum, and assessed that it would take more time than they had previously anticipated to be more confident that the inflation rate would continue to move towards (the Federal Reserve's target) 2%.”

Many participants said that the public seemed to have a good understanding of how the Federal Reserve's Monetary Policy Committee FOMC relies on data to make decisions and its commitment to full employment and price stability. Many participants also emphasized the importance of continuing to convey this message.

While discussing inflation, participants pointed out that they still expect the inflation rate to fall back to 2% in the medium term. However, recent data has not strengthened their confidence that the inflation target will be met, so they believe that the process of reducing inflation may take longer than previously anticipated.

Many participants were unsure about the extent to which the policy was restrictive

x In discussing risk management considerations that may affect policy prospects, participants generally agreed that the risk of the FOMC meeting employment and inflation targets has become more balanced over the past year. Participants continued to pay close attention to the risk of inflation and pointed out that the economic outlook is uncertain. Following this sentence, the notes read:

Although monetary policy was viewed as a restrictive policy, many participants (many) said they were uncertain about the extent of the restrictions. According to these participants, this uncertainty stems from the possibility that high interest rates may be less affected than in the past, that long-term equilibrium interest rates may be higher than previously anticipated, or that potential output levels may be lower than anticipated.

The minutes mentioned that participants believed that current monetary policy can still cope well with changing economic conditions and future risks, and disclosed that,

Participants discussed whether to maintain the current restrictive policy stance for a longer period if inflation shows no signs of a sustainable fall back to 2%, or reduce policy restrictions in the face of an unexpected weakening of the labor market. A number of participants (Various) mentioned that once the risk of inflation becomes a reality, it is appropriate to further tighten policies, and they are willing to act in this way.

Many people are uncertain about the extent of restrictions in the current financial environment and the risk of insufficient restrictions

When discussing the risks and uncertainties facing the economic outlook, Federal Reserve officials generally believe that they are unsure how long high inflation will last, and that recent data has not increased their confidence that inflation will continue to fall to 2%.

In terms of geopolitical impact, some participants pointed out that if geopolitical events or other factors cause serious supply bottlenecks or increase transportation costs, they may increase upward pressure on prices and suppress economic growth. The possibility of a geopolitical event may also put upward pressure on commodity prices, which is also an upward risk of inflation.

They mentioned the impact of the financial environment. A number of participants (A number of) indicated that it is uncertain how limited the current financial environment is, and the risks associated with this inadequate limit aggregate demand and inflation.

Participants pointed out some of the downside risks of economic activity already mentioned at the previous meeting, including the slowdown in growth in large Asian economies and the deterioration of the US domestic commercial real estate (CRE) market environment. This time they also mentioned the downside risks brought about by the sharp tightening of the financial environment.

In addition to downside risks to the economy, participating Federal Reserve officials also discussed the upward risks facing the US economy. The notes read:

Several participants (Several) said that improving efficiency and technological innovation may continue to increase productivity growth, which may make economic growth faster, and inflation will not rise.

Almost all support to slow down the contraction in June and cut the scale of treasury debt reduction by more than half

After the meeting at the beginning of this month, the Federal Reserve announced plans to reduce quantitative austerity (QT), slow down the pace of balance sheet reduction (downsizing) from June, reduce the maximum monthly downsizing of US Treasury bonds by more than half to $25 billion, and keep the scale of institutional mortgage-backed securities (MBS) downsizing unchanged.

According to the minutes of this Wednesday's meeting, “almost all (almost all)” participants expressed support for the slowdown and downsizing of the above treasury debt reduction by more than half starting in June. Although the decision was unanimously approved by FOMC members, “A few (A few)” participants said they could have supported continuing the current downsizing rate, or that the reduction of US Treasury bonds was limited slightly higher than the resolution.

A number of participants (Various) emphasized that the decision to slow downsizing will not affect monetary policy positions. Several participants also emphasized that the decision to slow down the downsizing did not mean that the final downsizing would be less than the original.

The fragility of the financial system is worth monitoring

When discussing financial stability, commenters noted that they think the fragility of the financial system is worth monitoring. Participants generally pointed out that high interest rates could lead to a weak financial system. In this context, some participants emphasized that monetary policy should be guided by the prospects for employment and inflation, and that other instruments should be the main means of dealing with financial stability risks.

As with previous meetings, Federal Reserve staff continue to believe that it is worth paying attention to the fragility of the financial system. This time, they also raised their assessment of asset valuation vulnerability to a high level, because a range of markets seem to be highly valued compared to risk-adjusted cash flow.

Editor/Somer