FX.co ★ Fed Minutes Suggest Interest Rates To Remain Higher For Longer

Recent data has not bolstered confidence that inflation is heading sustainably towards the 2 percent target. The minutes from the latest Federal Reserve meeting indicate that officials expect to maintain the current interest rates for a longer period than initially anticipated.

The minutes from the April 30-May 1 meeting, released on Wednesday, noted the disappointing inflation readings in the first quarter and strong economic momentum indicators. Participants in the meeting assessed that it would take more time than previously expected to gain sufficient confidence that inflation is moving sustainably toward the 2 percent goal.

Fed officials have repeatedly stated that they need "greater confidence" in slowing inflation before considering rate cuts. As such, the minutes revealed discussions about maintaining the current restrictive policy stance for an extended period.

Officials also considered reducing policy restraint if there were an unexpected weakening of labor market conditions. However, several participants expressed a willingness to raise interest rates further if inflation risks materialized in such a way that warranted such action.

Meanwhile, the participants reiterated that the future path of interest rates would depend on incoming data, the evolving economic outlook, and the balance of risks.

The next Federal Reserve monetary policy meeting is scheduled for June 11-12, with expectations that the central bank will leave interest rates unchanged once again.

While the likelihood of a rate cut by September remains high, the chances have decreased to 70.6 percent from nearly 90 percent last week, according to the CME Group's FedWatch Tool.