Bankinter: The minutes of the Fed’s 13/14 June meeting show a broad consensus on the decision for a pause in rate hikes although a majority of directors (16 out of 18) believe that some additional rate hikes in the future from the current level of 5.00%-5.25% are appropriate.
There is also a consensus that rates should remain in tightening territory until inflation reaches its 2% target. The minutes hardly change the expectations of a further 25bp hike in July and a lower probability, 30%, of an additional hike before the end of the year. The Fed’s central scenario remains that of a mild recession in 4Q23 and 1Q24 followed by a moderate recovery. Growth in 2024 and 2025 will be below long-term potential and unemployment will rise in 2023, peak in 2024 and remain at that level through 2025. They forecast PCE of 3.0% in 4Q23 and core inflation of 3.7%, which would remain slightly above 2% in 2024.
Assessment: The minutes do not bring anything new, they confirm that the Fed is already assessing how much additional tightening is needed and not so much in maintaining the pace of hikes. The impact on the market and on interest rate expectations was very moderate.
