The FOMC Minutes have been released—meeting logs that highly interest markets because they hint at the Fed’s future outlook. Here are the highlights.
On May 20th, the FOMC Minutes were published—the Federal Reserve logs that show in detail the reasoning behind the FOMC’s decision (Federal Open Market Committee), the monetary policy meeting where interest rates are set. Markets pay close attention to this type of communication, especially since they often provide hints about the future. But first, let’s quickly look at the reference framework—relating to the last FOMC of April 28-29, the last one chaired by Jerome Powell before handing over the baton to Kevin Warsh.
The macroeconomic context: between inflation and the labor market
To understand the internal discussions within the Fed and their relevance, however, we need to take a step back and look at the numbers that Jerome Powell and his colleagues had on the table.
Inflation: May data
According to data published by the BLS (Bureau of Labor Statistics), inflation stood at 3.3% year-on-year. The increase, logically, was heavily driven by the rise in energy prices, triggered by the closure of the Strait of Hormuz and the conflict in Iran and the Middle East. This is a quite concerning picture: inflation is still running well above the Fed’s 2% target.
Interest rates (FOMC): the April 29 decision
At the end of the late-April meeting, the FOMC left interest rates unchanged: during the press conference, outgoing Fed Chairman Jerome Powell defended the decision to keep the so-called “easing bias” in the statement—language indicating an inclination toward future cuts—explaining that changing the wording is a signal in itself and the Fed prefers to maintain a more conservative approach.
So, to sum up, the United States is in a situation where inflation has started rising again due to geopolitical shocks and massive investments in artificial intelligence (AI), which are overheating demand. On the other hand, the unemployment rate stands at 4.3% with new job creation remaining contained. Let’s move on to the Minutes.
FOMC Minutes: a shocking change of direction?
Let’s get to the core issue: what did the members of the US central bank say behind closed doors? The logs show a Fed that has almost completely shelved the question of the last two years—namely whether to cut rates—to start seriously considering the opposite scenario: raising them.
Reading the Minutes, it emerges that the majority of officials highlighted that “some monetary policy tightening would likely become appropriate if inflation were to continue to run persistently above 2%”. Furthermore, there is a clear preference for removing the so-called easing bias from the statement—the tendency to include rate cuts among the options—supporting the stance of the three presidents (Hammack, Kashkari, and Logan) who formally objected on that specific point. But there are also those who continue to favor a more dovish monetary policy: Stephen Miran, the Governor appointed by Trump following Adriana Kugler’s resignation, voted against, preferring—as always—a 25 basis point cut due to labor market risks.
On the risk management front, members agree that there are upside risks to inflation and downside risks to employment. The main fear is that prolonged high energy prices and trade tariffs could make inflation structural. For this reason, monetary policy does not follow a pre-set path, and members reiterated that future decisions will be taken meeting by meeting.
Next FOMC: what are the forecasts?
At the time of writing, CME Group’s FedWatch estimates on interest rate futures markets indicate a probability of nearly 50% of seeing at least one 25 basis point rate hike by the end of this year. Regarding the next FOMC, No Change—unchanged rates—is priced in as a certainty at 99.1%, while the remaining 0.9% relates to a hike.If you’ve made it this far, it means this topic interests you: join our Telegram channel and/or subscribe to Young Platform so you don’t miss the news moving the markets!
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