Fed Minutes Reveal Growing Unease Over Inflation Path: Not 'Merely Statistical Aberrations'

Minutes from the latest Federal Open Market Committee (FOMC) meeting in March underscore escalating uncertainties regarding the future of inflation among various Fed members, intensifying concerns about interest rates on a day marked by another unforeseen uptick in the consumer price index.

March FOMC Minutes: Key Highlights

• Participants generally expressed uncertainty regarding the persistence of high inflation and conveyed the view that recent data “had not increased their confidence” in the sustained movement of inflation towards the 2% target.
• Some participants pointed out that the recent increases in inflation had been relatively widespread, indicating that they should not be dismissed as “merely statistical aberrations.”
• Several participants highlighted the strong labor market, ongoing wage gains, and generally healthy household-sector balance sheet as factors expected to continue supporting consumption.
• Some participants highlighted geopolitical risks that could lead to more severe supply bottlenecks or increased shipping costs, potentially exerting upward pressure on prices. They also noted that such developments could negatively impact economic growth.
• Several participants remarked that increased efficiencies and technological innovations had the potential to boost productivity growth, potentially enabling the economy “to grow faster without raising inflation.”
• Participants noted that the disinflation process was continuing on a path generally expected to be “somewhat uneven.”
• Almost all participants concluded that it would be “appropriate” to move policy to a less restrictive stance at some point this year if the economy progressed generally as anticipated.
• They added that it would not be appropriate to reduce interest rates until they had acquired greater confidence that inflation was steadily moving towards 2%.

Market Reactions

Stocks were unchanged following the release of March FOMC minutes, with SPDR S&P 500 ETF SPY down 1% for the day.

Treasury yields held at session highs, with the policy-sensitive 2-year yield up 21 basis points to 4.96%, on track to close at the highest since late November 2023.

Bonds extended losses with the iShares 20+ Year Treasury Bond ETF TLT down over 2%.

Real estate stocks were the hardest hit, with the Real Estate Select Sector SPDR Fund XLRE down 4.5%

Energy stocks managed to flip to gains, with the Energy Select Sector SPDR Fund XLE up 0.4% as oil prices rose.

Read now: ‘This Puts The Fed In Quite A Tricky Position’: 7 Economists Weigh In On March Inflation Report

Image generated using artificial intelligence via Midjourney.