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The 25 bps rate increase announced at the May meeting, according to several Fed policymakers, may have been the last. They emphasize the necessity for flexibility in the face of economic change. The FE staff predicts a slight recession for the latter part of the year, with increased risks to growth and the economy being affected by tighter monetary policy.
Despite the uncertainties, the majority of participants think rate cuts are unlikely, leaving open the prospect of additional rate hikes if required. The most recent Federal Reserve May meeting minutes indicated that additional rate hikes were “less certain,” which allowed USD/JPY to extend its gains of more than 0.39 percent. The USD/JPY is currently trading at 139.05 and is pointing to a new year-to-date high of 139.38.
Indicating a rift among policymakers, the minutes emphasise the value of flexibility in subsequent sessions. The minutes from the Fed’s May meeting revealed uncertainty among policymakers, with some endorsing the 25 bps rate hike and emphasising that it might be the last, while others cautioned that future meetings should be more flexible. In their statement, policymakers said that if the economy develops “along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.”
Late in the year, according to Fed officials, there will be a “modest recession,” with policymakers “seeing evidence” that the economy has already begun to feel the effects of the overall tightening, as “almost all participants” anticipate growth concerns as bank credit becomes more restrictive. No rate reduction are anticipated, according to the majority of participants, who also noted that rate rises are still an option. Participants emphasised the value of making the data-dependent approach known to the general audience. In light of this, the meeting-by-meeting strategy was confirmed during the May meeting, and the US central bank will revise its predictions following the meeting on June 13–14.
