Recap of the May meeting
The most recent FOMC meeting was on May 1–2. At the meeting, the range for the federal funds target rate was left unchanged at 1.50%–1.75%. The decision to leave the rate unchanged had been expected by the markets, but the FOMC used the meeting to announce a likely rate hike in June. The meeting’s minutes were released on May 23.
FOMC meeting minutes are usually released three weeks after an FOMC meeting. They help investors, market observers, and economists understand the thinking that led to the decision at the end of the meeting.
May’s meeting minutes had a positive impact on the equity (SPY) markets, as they sounded dovish. Bond yields (AGG) have fallen, as the Fed’s members were unsure whether inflation (TIP) would tick higher, and the US dollar (UUP) remained supported as short-term interest rate hike expectations remained anchored.
Key takeaway from the meeting
The key takeaway from the May meeting was that the FOMC is looking at moving from an accommodative policy framework to a neutral one. Though inflation has moved closer to the Fed’s 2% target, the use of the term “symmetric” regarding the inflation target suggested that the Fed wasn’t particularly eager to increase rates aggressively despite inflation (VTIP) reaching its target. The meeting minutes left the markets guessing about a fourth rate hike in 2018, as members remained divided about inflation remaining above the 2% target.
In the remainder of this series, we’ll further analyze the FOMC’s May meeting minutes to understand the committee’s assessment of economic and financial market conditions and how that could affect the bond (BND), currency, and equity markets.