BREAKING: Fed sees a huge inflation risk

Minutes from the FOMC meeting that took place in June has just been released. Markets were primarily focused on whether US central bankers discussed whether it would be appropriate to raise interest rates by 75 bp or even 100 bp in July . The release showed that Policymakers expect that increase of 50 or 75 bps would likely be appropriate this month. Below you can find key takeaways from Minutes:

• The Fed decided that high inflation was a big threat, hence a strong increase
• Fed members admit that current policy may slow growth for some time
• An even stricter policy is possible in the future
• So far, Fed members have not noticed clear signals that the supply chain situation has improved (a major cause of inflation)
• Policy may be more restrictive however this will depend on whether inflation remains high

The minutes seem quite hawkish, as was the case with the decision itself. Based on the minutes alone, the Fed may want to spot signs of declining inflation before changing its approach. Of course, we have a huge risk of a recession, but inflation is not slowing down at the moment (only a slight retraction of the core PCE). Market reaction is subdued, EURUSD slightly rebounds, but remains near recent lows, while US500 is also rising slightly, which may be related to the fact that there is no clear signal that rates will be raised by 75bp in July.

The Fed has a big problem at the moment, as we face the risk of a recession and there are signs of deterioration in the labor market. Of course, the deterioration itself does not have to be stopped by the Fed, as the central bank expected the unemployment rate to increase in response to the tightening of monetary conditions.

US500 attempt to rebound and is approaching key resistance at 3850 pts. Source: xStation5