There Federal Reserve confirms that she remained disappointed by the inflation trend and reiterates that, probably, a rate cut of US interest will slide further on, perhaps even after the month of September. This is what emerges from minutes of the last meeting of the FOMC's monetary policy, which seem to underline the considerations already expressed in the last period by various members of the American central bank, such as Governor Walker, who last Tuesday stated that he wanted to see “several months” of positive data before voting in favor of a cut.
At the last meeting on May 1stthe FOMC voted unanimously to maintain the rate short-term reference interest rate in a range between 5.25% and 5.5%, the highest level in 23 years, stable since July 2023.
Bankers disappointed by inflation
In recent days, several FOMC members have admitted they are staying put disappointed by inflation and, in fact, even the FOMC minutes do not hide this sentiment.
“Participants noted that inflation had moderated last year, but in recent months there was a lack of further progress“, we read in the minutes of the Fed, which underlines that bankers “continue to expect inflation to return to 2% in the medium term. However, recent data did not increase their confidence of progress towards 2% and, consequently, suggested that the disinflation would probably have taken place further than previously thought“.
The most recent numbers
The data of theApril inflation they showed a annual rate of 3.4%, slightly lower than March. Excluding food and energy, there was growth of 3.6%, the lowest since April 2021. However, consumer surveys have highlighted growing concerns: the latest confidence survey from the University of Michigan revealed 12-month inflation expectations to 3.2%, but the consensus on the May figure signals a worsening to 3.5%.
What FOMC members think
“The (FOMC) participants have discussed several factors which, together with an appropriately restrictive monetary policy, could support the return of inflation towards the target over time”, explain the minutes, indicating that one of these factors is the further reduction in inflation in housing services and in particular in rents on new lease contracts.
Others focused on the prices of essential services, other than the real estate market, while some members stated that a rebalancing of the labor market and an increase in productivity could favor a deceleration of inflation.
The minutes revealed that “various participants they mentioned the desire to further tighten the policyshould inflation risks materialize in a way that makes such action appropriate.”
Market expectations
Markets continued to adjust their expectations about cuts this year. If at the beginning of the year the expectation of a rate cut of at least six quarters of a point percentage (-1.5%), subsequently this expectation was significantly reduced and they expected the maximum two quarter point cuts (-0.5%) starting from September.
After the publication of these minutes, however, expectations have been further reduced and now futures prices indicate a 60% chance that the first reduction occurs a September (a majority but not that strong), while the probability of a second cut by December it slipped to a 50-50that is, the equivalent of tossing a coin.
