The Zhitong Finance App learned that Guangfa Securities released a research report saying that Federal Reserve officials generally believe that policy interest rates are in a reasonable position and still pay attention to the balance between the level of inflation and the job market. If inflation does not progress further, it is necessary to maintain high interest rates for a longer period of time; in addition, they support reducing the QT scale. The team believes that overall, the Federal Reserve still maintains a data-dependent strategy and has not given a definitive monetary policy path; however, the “central position” of its monetary policy stance has changed slightly: the statement in the minutes shows that inflation is no longer the only consideration for interest rate cuts; balancing inflation and the job market is.

First, the Federal Reserve holds eight interest rate meetings every year. Meeting minutes (Minutes) are detailed explanations of the policy formation process and the logic behind the policy, and are generally published three weeks after the meeting. The decision of the interest rate meeting on May 1 was to keep interest rates unchanged (policy interest rate target range of 5.25-5.5%) and slow down contraction (slow the passive reduction of 60 billion US dollars of treasury bonds per month to 25 billion US dollars per month). The minutes of the interest rate meeting released on May 23 show more details behind this decision: First, Federal Reserve officials generally believe that policy interest rates are in a reasonable position (well-balanced). Regarding the repeated inflation data for the first quarter, some participants said that if inflation picks up further, they are willing to tighten policies; second, the Federal Reserve still attaches importance to the level of inflation and the balance of the job market. Participants believe that if inflation does not progress further, interest rates will need to be kept high for a longer period (longer); but if the job market weakens unexpectedly, interest rates will be cut soon. Third, almost all participants supported reducing the QT scale. Some participants emphasized that reducing QT would not affect the tight monetary policy position.

Second, overall, the Federal Reserve still maintains a data-dependent strategy and has not given a definitive monetary policy path; however, the “central position” of its monetary policy stance has changed slightly: the statement in the minutes shows that inflation is no longer the only consideration for interest rate cuts; balancing inflation and the job market is. This is consistent with Powell's three policy lines during the press conference after the interest rate meeting: first, if inflation continues to be high, the Fed will not cut interest rates; second, if inflation starts to fall, the Fed will cut interest rates; and third, if the job market weakens beyond expectations. Powell doesn't think the Federal Reserve will raise interest rates (raise); he doesn't think there is a risk of stagflation; future inflation will decline (see inflation moving down).

Third, it should be noted that the Federal Reserve's interest rate meeting was at the beginning of the month. At the time, it was facing high inflation data for the first quarter; the non-agricultural data released on May 3 unexpectedly fell, and the US job market continued to loosen; the overall April inflation data released in the middle of the month continued to slow, with CPI up 3.4% year over year, lower than the previous 3.5%; core CPI was 3.6%, lower than the previous value. Observing recent statements from Federal Reserve officials, their confidence has increased. On May 21, Federal Reserve Governor Waller (Waller) said in his speech that recent data shows that restrictive monetary policies are leading to a gradual cooling of demand, inflation is not accelerating, and there is no need for the Federal Reserve to raise interest rates (raising interest rates).

Fourth, the Federal Reserve's interest rate meetings usually have staff (staff) provide a benchmark outlook material for the Federal Reserve participants (participants) to refer to. The judgment of the May material on the economy is similar to the March meeting (similar to March projection). The economic growth rate is close to potential growth, and the unemployment rate is likely to remain stable after falling slightly (edge down slightly) in 2024. The minutes of the May meeting did not provide specific economic forecast data, but according to the March 2024 Economic Forecast (SEP), Federal Reserve officials are optimistic about the economy. In the March SEP, the Federal Reserve raised the 2024 GDP forecast to 2.1%, the previous value of 1.4%; the 2025 and 2026 GDP forecasts were raised from 1.8% and 1.9%, respectively; and the unemployment rate was lowered to 4%, the previous value of 4.1%.

Fifth, in terms of inflation, the Federal Reserve staff believes that both PCE and the core PCE price index will fall back from 2023, but the pace of decline may be slower than the March judgment. Inflation is expected to decline further after 2024 and return to close to 2% in 2026 (PCE and core PCE). According to the March 2024 Economic Forecast (SEP), Fed officials are optimistic about a return in inflation: the 2024, 2025, and 2026 core PCE forecasts are 2.6% and 2.2% year over year, respectively. In other words, the Fed's 2% inflation target has a long time frame.

Sixth, since the minutes of the May meeting were generally in line with expectations, the market's expectations regarding the probability that the Fed would cut interest rates were not adjusted much after it was announced. According to Fed Watch data, the probability of not cutting interest rates in July was 80.1%, slightly higher than the previous value of 74.6%; the 25 bp rate cut in September and the probability of not cutting interest rates were 50.9% and 38.5%, respectively, compared with the previous values of 51.6% and 34.3%, respectively. The 10-year US Treasury yield rose slightly by 1 bp to 4.42%; the US dollar index rebounded slightly to 104.933. The three major US stock indexes all fell slightly. The S&P 500 index fell 0.27%, the Dow Jones Industrial Average fell 0.51%, and the Nasdaq index fell 0.18%.