The Fed does not rule out another 75 basis point rate hike in July, or will adopt a "more restrictive" policy to fight inflation

According to the minutes of the Federal Open Market Committee's June 14-15 policy meeting released on Wednesday, Federal Reserve officials unanimously agreed that interest rates need to be raised at a faster pace to fight inflation, with a possible 50 or 75 basis point increase in July.

The document also said: "Participants agreed that the economic outlook warranted a shift toward a restrictive policy stance, and they recognized that a more restrictive policy stance might be appropriate if inflation pressures persisted."

The minutes showed a consensus among the 18 Fed officials who participated in the policy-setting meeting. Of the 11 members who voted last month, Kansas Fed President Esther George opposed a small half-percentage point increase, while all other officials, including those who did not vote, supported a 0.75 percentage point increase.

Bitpush previously reported that the interest rate hike announced by the Federal Reserve on June 15 was the largest since 1994. Federal Reserve Chairman Powell said at a press conference that day: "Obviously, today's 75 basis point increase is unusually large, and I do not expect moves of this magnitude to be common."

However, data from CME's interest rate monitoring tool FedWatch showed that the probability of another 75 basis point rate hike this month was close to 90%, and the probability of a 50 basis point rate hike was 10%.

Fed officials' forecasts for the economic outlook are relatively bleak, with risks to economic activity tilted to the downside and inflation risks tilted to the upside, and the committee prioritizes fighting inflation. The minutes said: "Many participants believed that a significant risk the committee now faces is that high inflation could become entrenched if the public begins to question the committee's determination to adjust its policy stance as needed."

Consumer prices rose 6.3% in May from a year ago, according to the Federal Reserve's preferred personal consumption expenditures price index. Core prices, which exclude the more volatile food and energy categories, rose 4.7% in May. The consumer price index has been moving higher, climbing 8.6% in May to a 40-year high. The core price index is up 6% from a year ago.

But officials at the meeting expressed optimism about the economy’s long-term path, even as they sharply cut their 2022 GDP forecast to 1.7% from 2.8% predicted in March.

Macro analyst Jack Farley said: "Markets were little changed after the release of today's minutes, and two things could increase the likelihood of a modest 50 basis point rate hike: the Atlanta Fed's GDPNow estimate for the second quarter was -2.1% (seasonally adjusted annualized rate), and the recent decline in commodity prices, which could moderate inflation data in June."

Some Wall Street analysts say the recession is likely to be mild. Credit Suisse analysts believe the U.S. is avoiding a recession as it cut its year-end target for the S&P 500 to reflect the impact of rising capital costs on stock valuations.

Federal Reserve Chairman Jerome Powell has repeatedly said he is confident he can achieve his goal of lowering inflation, even as he acknowledged there are risks ahead.

At a forum hosted by the European Central Bank last week, Powell again made hawkish remarks. He said: "The risk is that due to the diversity of shocks, we begin to transition to a higher inflation environment. Our job is to prevent this from happening, and we will prevent this from happening... Is there a risk of excessive interest rate hikes? Of course, there is a risk, but I don't think it is the biggest risk facing the economy. The bigger mistake would be... the failure to restore price stability."

Market data showed that U.S. stocks closed slightly higher on Wednesday. The S&P 500 rose 0.1%, the Nasdaq fell 0.4%, and Bitcoin was basically flat, with a 24-hour volatility of less than 1%.