trending Market Intelligence /marketintelligence/en/news-insights/trending/qqng_bowm4un24oatde4pa2 content esgSubNav
In This List

Fed officials say next hike could come 'soon,' inflation may surpass 2%

Blog

Using ESG Analysis to Support a Sustainable Future

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook


Fed officials say next hike could come 'soon,' inflation may surpass 2%

Most Federal Reserve officials think their next rate hike should come "soon" as inflation has finally come close to their 2% target, according to minutes of their most recent meeting in May.

If economic data do not show major surprises, the minutes show, most Fed officials think "it would likely soon be appropriate" for the Federal Open Market Committee to hike its benchmark federal funds rate again.

The May meetings resulted in the Federal Open Market Committee keeping the rate unchanged at a target range of 1.5% to 1.75%.

But analysts expect the FOMC will increase the rate by 25 basis points when it meets again in June. Fed officials, who raised the rate in March, have signaled they will do so three or four times in total this year.

FOMC participants "expressed a range of views" on how much further the Fed needs to tighten monetary policy, but they "generally agreed" that the Fed's current gradual path remains appropriate.

The minutes "reinforced the unanimous expectation" of a rate hike in June, wrote Doug Porter, chief economist at BMO Capital Markets, in a note to clients. "That said, nothing else in the minutes suggested the Fed was even thinking about accelerating the pace of tightening," he added.

U.S. stock indexes, which had been down for much of the day, largely picked up after the release of the minutes. As of 3:20 p.m. ET, the Dow Jones Industrial Average stayed roughly flat at 24,834.79, while the S&P 500 added 0.16% to 2,728.85 and the Nasdaq Composite Index rose 0.36% to 7,405.05.

Just ahead of the FOMC's May meetings, the Fed's preferred inflation gauges had increased to about 2% year over year in March, after persistently undershooting that target in recent years. The personal consumption expenditures index hit 2%, while the core PCE index, which excludes food and energy, rose to 1.9%. The two figures increased from 1.7% and 1.6% in February, respectively.

Fed officials have become more confident that inflation will hover around the 2% goal, the minutes show, though at least one of them said that outlook was "premature." Several Fed officials "suggested that the underlying trend in inflation had changed little" and that perhaps the figures moved up due to temporary factors, such as changes in healthcare prices.

Overall, though, officials at the central bank have begun saying they would welcome an overshoot in the target. Atlanta Fed President Raphael Bostic, for example, has said he is "very comfortable" with slightly going past the 2% mark for some time. Fed officials discussed that a temporary overshoot in the Fed's 2% goal "could be helpful" in anchoring inflation expectations around that mark, the minutes show.

They also debated whether a flattening yield curve was sending concerning signals, a point that some analysts have been raising given that a yield curve inversion has historically signaled an upcoming recession.

A few Fed officials said the measure may have become a "less reliable signal of future economic activity," partly due to the Fed's roughly $4 trillion balance sheet holding down yields on longer-term Treasurys.

S&P Dow Jones Indices and S&P Global Market Intelligence are owned by S&P Global Inc.

Market prices and index values are current as of the time of publication and are subject to change.