FOMC Minutes: Pause was unanimously favoured – UOB

According to the latest FOMC minutes (released on 6 Jul, 2am SGT), while the Federal Reserve (Fed) policymakers in its 13/14 Jun 2023 Federal Open Market Committee (FOMC) meeting unanimously agreed to keep the target range of its Fed Funds Target Rate (FFTR) unchanged at 5.00%-5.25%, it was seen as a less united agreement among an increasingly divided committee. The next move in Jul is almost guaranteed to be a hike, as “almost all” Fed policymakers agreed hikes will be needed this year to continue the Fed’s battle to curb inflation. 

According to the minutes, “almost all participants judged it appropriate or acceptable to maintain the target range for the federal funds rate at 5 to 5-1/4 percent at this meeting. Most of these participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy's progress toward the Committee's goals of maximum employment and price stability. Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal.”

 And importantly, “almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.” 

The participants continued to agree that inflation was unacceptably high and declining slower than they had expected, while core goods inflation had moderated since mid-2022, “it had slowed less rapidly than expected in recent months, despite data and reports from business contacts indicating that supply chain constraints had continued to ease.” 

FOMC Outlook – One More Hike In Jul FOMC. The Jun FOMC minutes, Jun Dotplot’s upward revision together with Powell’s hawkish comments affirm more Fed policy tightening ahead. We still expect the Fed to hike one final time by 25bps at this upcoming Jul 2023 FOMC to the range of 5.25-5.50% and pause thereafter for rest of 2023. There is risk for one more hike in 2023 but we believe the Fed is very near the cycle’s end. We continue to expect no rate cuts in 2023, which is also the consensus view at this juncture.