Fed majority allowed a rate hike if inflation stays high

A majority of U.S. Federal Reserve officials conceded at their last meeting that an interest rate hike will become necessary if war with Iran continues to exacerbate inflation, according to minutes released on Ma. 20.

Fed officials disagreed on how long the impact of the Iranian crisis on prices will last and whether the statement from the meeting should still point to rate cuts as the regulator's most likely next move, CNBC notes. At the same time, "most participants emphasized that some policy tightening would likely become appropriate if inflation continues to hold steady above 2%," the minutes said.

Following a meeting in late April, the Federal Open Market Committee again voted to keep the target range for the benchmark rate at 3.5-3.75%. That said, there were also four negative votes - the most since 1992, CNBC noted. Three of the four belonged to regional Federal Reserve Bank presidents. They agreed with the decision to leave the rate unchanged, but objected to the inclusion of a reference to "additional adjustments" to rates in the committee's statement. Such wording is perceived by market participants as a hint that the next step will be a reduction, CNBC explained.

As noted in the final minutes, "many participants indicated that they would have preferred to remove language suggesting a bias toward policy easing from the meeting statement." In general, officials agreed that conflict with Iran would have "significant implications" for the Fed. "The overwhelming majority of [committee] participants noted an increased risk that inflation would take longer to return to the Committee's 2 percent target than they had previously expected," the paper said.

The US stock market continued to grow after the Fed's release. The S&P 500 index added almost 1%, the Dow Jones - more than 1.2%, the technology index Nasdaq Composite traded in the plus by 1.3%. According to CME Group's Fedwatch trader sentiment monitoring tool, the market estimates the probability of a rate hike in December at more than 50%.

This article was AI-translated and verified by a human editor