Federal Reserve members at the Federal Open Market Committee’s (FOMC) July 25-26 meeting indicated another interest rate hike is a possibility, according to recently released minutes from the meeting.
In assessing the current economic condition, FOMC members “stressed that inflation remained unacceptably high and that further evidence would be required for them to be confident that inflation was clearly on a path toward the committee’s 2 percent objective,” according to the meeting’s recently release minutes.
“With inflation still well above the committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”
FOMC participants “stressed that the committee would need to see more data on inflation … to be confident that inflation pressures were abating and that inflation was on course to return to 2 percent over time.”
At the meeting, the Federal Reserve raised the key interest rate by 0.25 percent, resulting in the highest level in 22 years. The minutes indicated not everyone agreed with the decision.
“Almost all participants judged it appropriate to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent at this meeting,” the minutes stated. “A couple of participants indicated that they favored leaving the target range for the federal funds rate unchanged or that they could have supported such a proposal.”
In a press conference after the FOMC meeting, Fed Chair Jerome Powell said any decision to raise rates again will be made meeting by meeting. “I would say it is certainly possible that we would raise funds again at the September meeting if the data warrant it, and I would also say it’s possible that we would choose to hold steady at that meeting,” he said.
He pointed out that by September, “we’re going to look at two additional job reports, two additional CPI reports, lots of activity data … and we’re going to make that decision then. And that decision could mean another hike in September, or it could mean that we decide to maintain at that level.”
It all depends on what the data says, Powell said.
“In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” he said. “We will continue to make our decisions meeting by meeting, based on the totality of the incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks.”
Mortgage market
As far as the residential mortgage market, credit “remained broadly available for high-credit-score borrowers,” FOMC participants said.
“Only modest net percentages of banks in the July SLOOS (Senior Loan Officer Opinion Survey on Bank Lending Practices) reported tightening standards for mortgage loans eligible to be purchased by government-sponsored enterprises, while a moderate net percentage of banks reported expecting to tighten lending standards further for these loans over the second half of the year,” the minutes stated. “Meanwhile, the availability of mortgage credit remained tighter for households with lower credit scores, at levels close to those prevailing before the pandemic. Banks reported in the SLOOS that they had tightened standards for certain categories of residential real estate loans to be held on their balance sheets, such as jumbo loans and home equity lines of credit. In addition, banks reported expecting to tighten standards for jumbo loans during the remainder of 2023.”
Banks’ ability to fund business and consumer loans “was generally stable,” participants said.
“Core deposit volumes at both large and other domestic banks held steady at the levels that they reached in early May, after having declined sharply in March and April amid the banking-sector turmoil. Banks continued to attract inflows of large time deposits, reflecting higher interest rates offered on new certificates of deposit,” the minutes stated.
FOMC attendees also said surveyed industry members expect 2024 might end without a recession.
“Respondents to the Open Market Desk’s Survey of Primary Dealers and Survey of Market Participants in July continued to place significant probability of a recession occurring by the end of 2024. However, the timing of a recession expected by survey respondents was again pushed later, and the probability of avoiding a recession through 2024 grew noticeably,” the minutes stated.