Federal Reserve’s minutes point to more potential interest rate hikes

Minutes published by the Federal Reserve from the 3-4 May meeting pointed towards more potential 50 basis points interest rate hikes.

Earlier this month, Federal Reserve officials stressed the need to rapidly raise interest rates, higher than markets anticipated in an attempt to tackle surging inflation. Policymakers noted that there was a high need to increase benchmark borrowing rates by 50 basis points and added that similar hikes will possibly be necessary during the next several meetings.

“Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings. Many participants assessed that the Committee’s previous communications had been helpful in shifting market expectations regarding the policy outlook into better alignment with the Committee’s assessment and had contributed to the tightening of financial conditions,” the released minutes noted.

During the 3 -4 May meeting, the rate-setting FOMC approved a half percentage point hike and laid out a plan that would see the central bank reduce its $9 trillion balance sheet consisting primarily of Treasuries and mortgage-backed securities.

“All participants reaffirmed their strong commitment and determination to take the measures necessary to restore price stability,” the published minutes added.

“To this end, participants agreed that the Committee should expeditiously move the stance of monetary policy toward a neutral posture, through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve’s balance sheet.”

Officials stayed committed to raising rates and reducing the balance sheet, the minutes added, noting that by doing so the Federal Reserve will be “well positioned later this year” to re-analyze the effect that their policy had on inflation.

US markets closed higher, despite the publication. The NASDAQ Composite closed 1.51% higher on Wednesday evening, the Dow Jones Industrial Average (DJI) was up by 0.60% and the S&P 500 surged by 0.95%.

EU markets also followed the positive sentiment opening higher on Thursday morning. London’s FTSE 100 was up by 0.078%, Germany’s DAX  jumped by 0.32% and France’s CAC 40 surged by 0.55%.