Analysts said the minutes showed the Fed remained on track for at least two more rate hikes this year, with the first one likely coming next month.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said Wednesday he expects “hikes in June, September and December.”
A couple of Fed officials had indicated a rate increase at the May 2-3 meeting would have been “warranted” but agreed to hold off, the minutes showed.
The Fed voted unanimously at that meeting to hold the rate target steady at between 0.75% and 1%. The policymaking committee’s official statement downplayed the weak data, including a sharp slowdown in economic growth in the first quarter, as “likely to be transitory.”
Minutes of the meeting, released with the usual three-week delay, said that policymakers “generally judged that it would be prudent to await additional evidence that the recent slowing in the pace of economic activity had been transitory” before hiking the rate again.
Ana Swanson of The Washington Post reported that Fed policymakers will watch for evidence that the recent slowdown is temporary:
The minutes, which were released Wednesday afternoon, showed some central bankers were still watching for evidence that a recent slowdown in growth is temporary and that inflation is heating up before committing to another interest rate hike. But if economic data comes in as expected, the Fed could raise rates when it meets on June 13-14, a move markets have generally been anticipating.
The minutes also contained details of how the Fed might reduce the massive $4.5 trillion balance sheet it accumulated by purchasing Treasury and mortgage-backed securities during the recession. Central bankers expressed preference for a plan that would let the assets gradually mature but every three months decrease the amount the Fed reinvests in these purchases, leading to a predictable and orderly reduction.
Stocks jumped after the release of the Fed minutes. The Standard & Poor’s 500-stock index closed at a record high, while the Dow Jones industrial average breached 21,000. Since President Trump took office in January, the markets have been on a tear, with investors buoyed by campaign promises to boost infrastructure, cut regulations and simplify the tax code — despite new questions about the Trump campaign’s ties to Russia and the uncertainty over Trump’s health-care and budget plans.
The participants of the Fed’s Open Market Committee, which makes interest rate decisions, reiterated that it was important to gradually raise interest rates to a more normal level after holding them ultralow for years to help stimulate a struggling U.S. economy.
Binyamin Appelbaum of The New York Times reported that the Fed is ending its economic stimulus program:
Investors also learned for the first time on Wednesday how the central bank is likely to reduce its holdings of more than $4 trillion in Treasury and mortgage-backed securities. A reduction of those holdings would be the last step in the Fed’s retreat from its economic stimulus campaign. The account of the May meeting reiterated that the Fed would probably begin taking that step later this year.
The Fed raised its benchmark rate in March to a range between 0.75 percent and 1 percent, the third increase since the 2008 financial crisis. Rates remain at a low level that supports economic growth by encouraging borrowing and risk-taking. The Fed is gradually reducing those incentives by raising rates because it believes the economy is expanding at roughly the maximum sustainable pace.
Although the Fed left the rate unchanged this month, its statement after the meeting was widely interpreted as setting the stage for a rate increase because of its reference to slow growth in the first quarter as “likely to be transitory.”
The account of the May meeting, published by the Fed after a standard three-week delay, generally reflects that optimism, describing most officials as ready to raise rates “soon,” provided the economy shows signs of the expected rebound. But the minutes also offered an unexpected note of caution.