This Is What The FOMC Minutes Tells Us

This Is What The FOMC Minutes Tells Us

The Dow Jones Industrial Average ended its five-day winning streak, which coincided with a waning of the recent rise, and the stock market futures were virtually unchanged early Thursday morning.

The value of futures contracts linked to the Dow Jones Industrial Average dropped by ten points. The S&P 500 futures showed no movement, while the Nasdaq 100 futures experienced a 0.1% decline.

The Dow Jones Industrial Average dropped approximately 172 points, equivalent to a 0.5% loss. The S&P 500 experienced its first negative session in four sessions, falling 0.7%. The relative underperformer was the Nasdaq Composite, which experienced a decline of 1.25%. The tech-heavy index and the S&P 500 are currently on course to end their respective winning streaks of four weeks.

What Did The Fed Say?

According to minutes from the July meeting posted on Wednesday, Federal Reserve officials suggested they would not consider slowing down on interest rate hikes until inflation came down substantially.

After voting to raise interest rates by 0.75 percentage points, central bank officials said they were committed to reducing inflation, which has been trending beyond the Federal Reserve’s target of 2%.

The Fed did not give any hard numbers for potential future hikes but did say they would be keeping a careful eye on the statistics. The market expects a rate hike of 0.5 percentage points at the September meeting, but this is still uncertain.

It was agreed upon at the meeting that a federal funds rate in the range of 2.25% to 2.50% would be “neutral,” meaning it would neither stimulate nor restrain economic activity. Some government officials have indicated that a restrictive approach is warranted, suggesting further interest rate hikes are on the horizon.

According to the Fed Minutes, participants considered that switching to a restrictive policy posture was essential to achieve the Committee’s statutory mission to promote maximum employment and price stability because inflation remained substantially over the Committee’s aim.

The memo echoed the premise that the Fed would ease up on the policy brakes once it becomes confident in its stance and sees its impact on inflation. The stock market has been enjoying a robust rally during the past few weeks, which was partly propelled by this idea.

According to the minutes from the meeting, the participants at the meeting “judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while reviewing the impacts of cumulative policy adjustments on economic activity and inflation.”

While some Fed members agreed that it’s likely to be reasonable to retain that level for some time to ensure that inflation was firmly on the road back to 2 per cent,” the report also noted that others disagreed.

The officials stated that the economic data would determine any future rate decisions. However, they also stated that there was little evidence that inflation was beginning to wane, and the minutes emphasized the Fed’s determination to bring down inflation on multiple occasions.

They said the policy’s effects wouldn’t be noticeable for “some time.” “Participants judged that a significant risk facing the Committee was that elevated inflation could become entrenched if the public began to question the Committee’s resolve to adjust the policy stance sufficiently,” the minutes said. “If this risk materialized, it would complicate the task of returning inflation to 2 per cent and could raise substantially the economic costs of doing so.”