The FOMC has spoken -- or at least indicated what the members had spoken among themselves at their May 10 meeting -- and the general feeling among the usual collection of expert commentators is that, as far as more rate hikes are concerned, all signals are still go. A representative comment, from the Wall Street Journal ...
The general tone of the commentary is consistent with policy tightening not being done at 5.00%. One statement that jumps out is in the section of the minutes that discusses the actual policy move: "Still, it seemed most likely that, with modest further policy action, including a 25 basis point firming today, growth in activity would moderate gradually over coming quarters, pressures on resources would remain limited, and core inflation would stay close to levels experienced over the past year." In other words, on May 10, most FOMC members were anticipating that they were not finished tightening policy with that day's [quarter-percentage-point] hike to 5.00%.
-- Joshua Shapiro, MFR Inc.
... seconded at BusinessWeek Online:
It seems the inflation "hawks gained the ascendancy at this meeting," said Dominic Konstam, head of interest rate strategy at Credit Suisse in New York. "The Fed is more cognizant of the need establish credibility over inflation,"he added.
Here's the passage in the minutes that seemed to really get people's attention:
Although the Committee discussed policy approaches ranging from leaving the stance of policy unchanged at this meeting to increasing the federal funds rate 50 basis points, all members believed that an additional 25 basis point firming of policy was appropriate today to keep inflation from rising and promote sustainable economic expansion.
Emphasis added there, and by many others. Once more from BusinessWeek...
Ian Lyngen, interest rate strategist at RBS Greewich in New York, said the comments on inflation, the discussion of a possible 0.50 percent rate hike and the fact that the Fed wasn't yet seeing evidence of a slowdown in growth gave the markets a "hawkish" tone.
... from Bloomberg...
"People were thinking they were either going to pause or go 25 basis points,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. "The fact that they are even talking about a half-point rise sounds a little more hawkish, I think, than people had expected.''
... and from the WSJ:
... The fact that a [half percentage] point hike in May was even discussed beggars belief, and it suggests now that we need to see a clear softening in the data if there is to be no hike in June.--Ian Shepherdson, High Frequency Economics...
That reference to data-dependence is still the theme of the day, but the consensus seems to be that the economic news since the meeting has been tipping the scales toward another move in June. Again from the Wall Street Journal...
... In this environment, the hawkish tone of the May FOMC minutes reinforces our lean that the Fed will tighten again at the end of June unless the May CPI figures give them a compelling reason not to.
--Stephen Stanley, RBS Greenwich Capital..
and from Reuters...
"The market is taking a bearish tone on the Fed's policy outlook," said Gary Schlossberg, senior economist at Wells Capital Management in San Francisco. "Today, it (FOMC minutes) didn't help with the case of a pause."...
"I don't think there is anything in the data flow since May 10 that would lead you to conclude other than that they raise rates at the end of June," said Joseph Balestrino, fixed-income strategist at Federated Investors in Pittsburgh.
... from MarketWatch (making reference to the April CPI report)...
"If the hawks were concerned on May 10 ... then they must be in 'hair on fire' mode now," said Steve Stanley, chief economist at RBS Greenwich Capital.
[Drew Matus, senior economist at Lehman Brothers] said the minutes do suggest that the Fed was looking at a way to pause in June when the central bankers met on May 10.
"I thought this came across as emphasizing the pause," said Matus. "Most of the commentary about concerns about inflation was balanced by commentary about growth. But since the time of the minutes, the game has changed and the inflation outlook is worse than when they were writing these minutes."
Not everyone thinks the story is over just yet. From the NY Times article...
... David Wyss, chief economist with Standard & Poor's, said he's still expecting the Fed to hold off in June, although he now thinks it's a bit more likely there will be one more rate hike at a subsequent meeting.
"The thing that strikes you number one [about the minutes] is they are worried about inflation," said Wyss. "At the same time they are talking about the expected cooling of the economy. I think it's going to be a race between how quickly inflation heats up and how quickly the economy cools off."
... and from the WSJ article:
The tone of the minutes was consistent with our view that the majority of officials may prefer a pause at 5%, but are unsure whether the incoming data will allow them to do so...--David Greenlaw, Morgan Stanley Fixed Income Economics
The Street.com's Liz Rappaport summed it all up this way:
Looking for certainty from the Federal Reserve these days is like waiting for Godot. You can talk and talk and talk about it, but it never comes.
Well geez, if the world would just cooperate...