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FOMC Minutes suggest a pause in June – UOB

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Senior Economist at UOB Group Alvin Liew comments on the latest release of the FOMC Minutes of the May gathering.

Key Takeaways

“According to the latest FOMC minutes (released on 25 May, 2am SGT), while the Federal Reserve (Fed) policymakers in its 2/3 May 2023 Federal Open Market Committee (FOMC) meeting, unanimously agreed to raise the Fed Funds Target Rate (FFTR) by 25-bps to 5.00%-5.25%, there was a lack of collective agreement on the next move.”

“Recall in the May policy decision, the Fed made a significant change in the forward guidance of its monetary policy statement (MPS), as it removed a key part of the FOMC statement, ‘some additional policy firming may be appropriate’ (from the Mar FOMC) and replaced it with ‘In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments’.”

FOMC Outlook – Done At 5.25% And Pause For Rest Of 2023. The change in language of the May FOMC statement and the lack of collective agreement among FOMC policymakers on the next policy move, implies our base case for a pause in the Jun FOMC remains valid. We still expect the 25-bps hike in the May FOMC to be the last one in the current Fed rate cycle and a pause thereafter. We continue to expect no rate cuts in 2023, with the FFTR terminal rate at 5.25% to last through this year.”

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