Fed may not repeat status quo in fight against inflation: Key takeaways from minutes of FOMC June 2023 review

Nearly all Federal Reserve officials favoured maintaining the benchmark interest rates in a scheduled monetary policy review last month, according to minutes of the US central bank's June 13–14 meeting released on Wednesday. The minutes also indicated the policymakers' intent to raise the rates further, in line with expectations of a hike at the end of July. The Fed is scheduled to meet on July 25-26. 

At its June meeting, the FOMC — the Fed's rate-deciding panel — decided to leave the key lending rate unchanged while signalling that borrowing costs may still need to rise by as much as half of a percentage point by the end of the year. The decision came amid the central bank's ongoing struggle to tame red-hot and sticky inflation without hurting economic growth.  

All eyes are on key macroeconomic data due before the meeting, including a monthly report of US jobless claims.

Here are 10 key takeaways from the latest Fed minutes:  

• The minutes highlighted that the Fed policymakers' decision to pause the key rate in mid-June was not as unanimous as earlier thought to be.  
• Almost all officials deemed it “appropriate or acceptable” to keep the benchmark US interest rates unchanged at 5-5.25 per cent. Others voted for a 25-bps increase instead, the minutes showed.
• The minutes highlight a rising dissent among Fed officials in the central bank's ongoing struggle against inflation.
• According to the minutes, citing data available till then, the US GDP appeared to be expanding at a modest pace despite tight labour market conditions. 
•  Policymakers noted that economic activity remained modest, on the back of robust job gains over the recent months and a low unemployment rate, though inflation remained elevated, according to the minutes.
• They agreed that the American banking system was "sound and resilient". "They commented that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation. However, participants agreed that the extent of these effects remained uncertain," the minutes stated. 
• The Fed's fight against soaring consumer prices in the world's largest economy is not over.
• The US Consumer Price Index grew four per cent annually in May, the slowest pace recorded since March 2021, when inflation had just started to worsen to what would be the highest in 41 years. In April, the annual rate had stood at 4.9 per cent the previous month. 
• Major central banks such as the Fed are yet to finish a Herculean task: to bring inflation under control without coming in the way of GDP growth. This is why any sign of resilience in the US economy is widely interpreted to favour further hikes in benchmark rates. 
• According to a poll by news agency Reuters, a report by the US Labor Department is expected to show that the American economy will have added 2,25,000 jobs last month, leading to the country's unemployment rate inching lower to 3.6 per cent. The unemployment rate edged up to 3.7 per cent in May but was "still at a low level", the minutes stated.

With inputs from agencies

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