Fed minutes show consensus to raise rates by +25bp, but debate in favour of no rate hike intensifies


Bankinter | Fed members unanimously decide to raise rates by +25bp, the same rate hike they did in February and which compares to the +50bp hike in December. The minutes reiterate the message of the previous meeting that inflation remains elevated and that its deceleration is slower than expected. Strong labour market and GDP growth support price increases.

All members approve of raising rates by +25bp and continuing to reduce the size of the Fed’s balance sheet. Many, however, have deliberated on the possibility of not raising rates this time and, instead, buying time to analyse the effects of the recent banking crisis and the latest rate hikes. There is a minority in favour of a +50bp hike, but they accepted the +25bp hike in the expectation of a tightening of credit conditions after the banking crisis and its negative effect on economic growth. There is no mention of the possibility of a recession, something discussed in previous meetings.

Inflationary pressures ease after Wednesday’s good inflation data (March) and deflation in energy. This effect is likely to be overshadowed by the energy hike in April. The Fed could end rate hikes soon, although it believes it should move slightly above 5.00% (i.e. implement the 3 May hike to 5.00/5.25%) and then wait and see.

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