Hold On To Your Wallet Following Fed Minutes

On Wednesday, the Federal Open Market Committee released its June meeting minutes, which suggest inflation remains the central bank's top priority.

What Investors Need To Know: The Fed's language on the economy was relatively bullish given recent elevated fears of a U.S. recession. The Fed reiterated its previous intentions to do whatever it takes to bring inflation down.

“Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the Fed said in its minutes.

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The Fed also said its monetary policy tightening could take a toll on the economy.

“Participants recognized that policy firming could slow the pace of economic growth for a time, but they saw the return of inflation to 2%t as critical to achieving maximum employment on a sustained basis."

The FOMC said inflation "could become entrenched" if the public loses confidence in the Fed's committment to act aggressively enough.

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Why It’s Important: The minutes come after the Federal Reserve last month issued its first 0.75% interest rate hike in 28 years. Fed Chair Jerome Powell also subsequently said an additional 0.75% rate hike is on the table for the July meeting as well.

The Federal Reserve has been under pressure all year to raise interest rates aggressively to combat inflation, but it must also attempt to avoid plunging the U.S. economy into a recession.

The Atlanta Fed's GDPNow forecasting model is projecting U.S. GDP growth fell 2.1% in the second quarter, which would mean the U.S. economy is already technically in a recession.

In June, the Fed projected 1.7% U.S. GDP growth in 2022 and 2023. The Fed is also projecting 2022 PCE inflation of 5.2% and an unemployment rate of 3.7%. All 18 members are now projecting interest rates will reach 3% by the end of 2022. Five members see interest rates topping 4% in 2023.

Markets React: The SPDR S&P 500 ETF Trust SPY traded higher by 0.3% after the Fed minutes reassured investors the economy is on solid footing for now and the Fed is willing to act with additional aggressive rate hikes if needed.

The yield on 10-year U.S. Treasury bonds rose slightly on Wednesday to 2.897% after hitting multiyear highs near 3.5% in mid-June.

Fed Chair Jerome Powell. Public domain photo.