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Fed Minutes Hint At More 50 Basis Point Interest Rate Hikes

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With inflation remaining stubbornly elevated, the minutes of the Federal Reserve's latest monetary policy meeting showed the central bank intends to move "expeditiously" to a more neutral monetary policy stance.

The minutes revealed the Fed plans to use both interest rate increases and reductions in the size of its balance sheet to achieve a neutral posture.

At the meeting, the Fed decided to raise the target range for the federal funds rate by 50 basis points to 0.75 to 1.0 percent, marking the biggest rate hike since May 2000.

The central bank also decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1.

The minutes of the meeting showed most participants agreed additional 50 basis point increases would likely be appropriate at the "next couple of meetings."

"Many participants judged that expediting the removal of policy accommodation would leave the Committee well positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments," the Fed said.

The shift toward a more neutral monetary policy stance comes as the Fed seeks to return inflation to its 2 percent goal while sustaining strong labor market conditions.

However, the minutes showed participants agreed a restrictive stance of policy may become appropriate depending on the evolving economic outlook and the risks to the outlook.

The Fed noted risks to the outlook for economic growth were skewed to the downside, while risks to the outlook for inflation were skewed to the upside.

Participants observed that developments associated with Russia's invasion of Ukraine and the COVID-related lockdowns in China posed heightened risks for both the U.S. and economies around the world, the Fed said.

The next monetary policy meeting is scheduled for June 14-15, with CME Group's FedWatch Tool currently indicating a 93.3 percent chance of another 50 basis point rate hike.

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