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The minutes from the May 1-2 Federal Open Market Committee (FOMC) May’19 monetary policy meeting showed policymakers remained firmly committed to a “patient” policy approach, stating interest rates likely will remain unchanged well into the future. It also showed policymakers raised their expectations continued to view sustained expansion of economic activity, with strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes.

The minutes re-emphasized the Fed’s patience while echoing the message from Powell’s post-meeting press conference, when he mentioned that many of the downside risks to the economy had “moderated somewhat.”

The minutes noted that many participants viewed the recent slowing in core inflation as being driven by transitory factors, but they remain comfortable with the patient approach to monetary policy. A number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations. The minutes are dated, since the recent escalation in trade tensions will modestly boost inflation and potentially hurt growth.

According to the minutes, several participants said that if inflation did not increase in coming quarters, there was a risk that inflation expectations could dip. That could make it even harder to get price increases back to the 2% target in a symmetric way, so that they are above the target as often as they are below it, as important to their credibility.

Despite their general optimism, the FOMC held the line on interest rates, primarily citing muted inflation that allow the central bank to watch how events unfold before making any further moves.

The Fed Funds futures are pricing in at least one 0.25% rate cut by the end of the year convinced that the trade war with China, a global economic slowdown and perhaps presidential pressure will force the Fed to reduce rates by the end of the year. After the release of the minutes the odds for a June cut dropped to 5%

FOMC will stick to the sidelines at the next interest rate decision as the committee insists that ‘the first-quarter softness in household spending was likely to prove temporary,’ and the FOMC may do little to offset the ongoing shift in U.S. trade policy as the central bank notes that the ‘prospects for a sharp slowdown in global economic growth, particularly in China and Europe, had diminished,’ and Fed officials may continue to emphasize that ‘their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data’ as the economy shows no signs of an imminent recession.

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