May 26, 2022

FOMC minutes reveal continued likelihood of a 50-basis point rate hike

Federal Reserve The Federal Open Market Committee (FOMC) Wednesday released minutes from its May meeting which revealed that although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. 

Participants from the meeting also indicated that they expected a robust growth in consumption spending and pointed to several elements supporting this outlook such as strong household balance sheets, wide job availability, and the U.S. economy’s resilience to new coronavirus waves.

“The minutes from the FOMC’s May meeting confirm that the committee is poised to raise the target fed funds rate by 50 basis points at each of the next two meetings, at a minimum,” stated NAFCU Chief Economist and Vice President of Research Curt Long. “At that point, the committee may be in a position to slow down the pace of rate hikes if a slowing economy brings more moderate inflation.”

Other key findings from the minutes:

  • with respect to the business sector, robust consumer demand, healthy household balance sheets, and inventory rebuilding contributed to business activity and investment;
  • Firms’ ability to meet demand continued to be limited by labor shortages and supply chain bottlenecks;
  • participants noted that inflation continued to run well above the Committee’s longer-run goal and that inflation pressures were evident across the board for goods and services;
  • on the ongoing turmoil between Ukraine and Russia, participants observed that energy and commodity price surges contributed to inflation pressures, as did the lockdowns happening in China; and
  • most participants judged that the 50 basis point increases in the target range would likely be appropriate in the next couple of meetings and that the FOMC’s communications had been helpful in shifting market expectations.

The FOMC is expected to next meet June 14-15.