Markets expect the Federal Reserve to hike rates 0.25-percentage-points at their upcoming May 3 interest rate decision. There’s a 7 in 10 chance of a hike according to fixed income futures, with a 3 in 10 chance of holding rates steady. That’s because with March’s economic data, as reported in April, inflation continues to run hot, compared to the Fed’s target, and recent unemployment numbers don’t imply a recession, despite some potential softness. That said, inflation is moving closer to the Fed’s goal, just at a slower pace than the Fed wants to see.
Hawkish Fed Minutes
The Fed have repeatedly stressed their intent to bring down inflation, and have signaled further hikes in their interest rate forecasts disclosed at the time of the March 21-22 meeting. The minutes from the Fed’s last meeting, released this month suggested a “mild recession” was possible. Still, the Fed’s focus appears to be on “unacceptably high inflation” and “slower-than-expected progress on disinflation”. The minutes did show that if the Fed weren’t assessing the impact of the very recent banking crisis during the March meeting almost in real time, then then some policy makers would have favored raising rates by a greater 0.50-percentage-points. This generally hawkish tone suggests a potential rate hike for May.
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