Fed Minutes Signal Inclination for Less Hawkish Stance, US Dollar Retains Gains

FED MINUTES KEY POINTS:

• Fed minutes show inclination for a less aggressive approach, but there is no broad consensus
• The document may be stale as several central bank members have offered updated comments about their expectations in recent days
• The U.S. dollar retains gains after the FOMC releases the summarized record of its last meeting, with traders more focused on the U.S. debt-ceiling drama

Most Read: EUR/USD at Critical Juncture as Bears Launch All-Out Assault on Major Trendline

The Federal Reserve today released the minutes of its May 2-3 meeting, at which the central bank voted to raise borrowing costs by 25 basis points to 5.00%-5.25% and signaled a potential pause in the hiking cycle to assess the lagging and cumulative impact of policy firming on the economy.

According to the summarized record of the proceedings, several Fed officials noted that inflation remains unacceptably high and biased to the upside, while acknowledging that downside risks to growth have increased on the back of tighter credit conditions. In this context, the Fed staff maintained the forecast of a mild recession for later this year.

Regarding the monetary policy outlook, there was no firm agreement on a specific course of action, with some participants supporting further hikes and others favoring a more cautious, data-dependent approach to retain optionality. In any case, the broader tilt was for a less aggressive stance, in line with the guidance issued in the statement.

Although the minutes provided good insight into the reasoning behind May’s decision, the document may be stale, as several policymakers have offered their updated opinions in recent days. Bullard and Waller, for instance, have voiced support for more tightening to counter sticky price pressures, while others have advocated hitting the pause button to wait and see.

Immediately after the minutes were released, the U.S. treasury yields trimmed their daily advance, but then recovered, allowing the U.S. dollar to keep most of its session gains, with traders still largely focused on the U.S. debt-ceiling saga. This will be the most important market catalyst to keep an eye on in the coming days.

US DOLLAR VERSUS TREASURY YIELDS CHART

Source: TradingView