Investing.com - Federal Reserve policymakers saw inflation nearing the U.S. central bank’s target prompting the need for gradual rate hikes, according to the minutes of its May meeting, published on Wednesday.
The Fed kept its benchmark rate unchanged at 1.50% to 1.75% at the conclusion of its two-day policy meeting on May 2 and stuck to its projections for two additional rate hikes this year.
Consumer price inflation, as measured by the 12‑month percentage change in the price index for personal consumption expenditures (PCE), was 2% in March, warranting the need for further gradual rate hikes, the Fed's minutes showed.
"Participants generally expected that further gradual increases in the target range for the federal funds rate would be consistent with solid expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term," according to Fed's minutes.
Fed officials also said that after an extended period of low inflation, the Committee's longer-run policy objective "was to return inflation to its symmetric 2% goal on a sustained basis."
The above-trend economic growth was underpinned by a number of factors including a strong labor market following a drop in the unemployment rate below 4% in April for the first time since 2000.
"A number of economic fundamentals were currently supporting continued above-trend economic growth; these included a strong labor market, federal tax and spending policies, high levels of household and business confidence, favorable financial conditions, and strong economic growth abroad," the minutes showed.
The report did little to alter the outlook for monetary policy, with the majority of traders expecting a rate hike at the Fed’s next meeting in June.
CIBC said the Fed minutes were somewhat dovish as the US central bank expressed "tolerance for a bit of overshooting on the inflation front" and did not appear too concerned about the prospect of an overheating economy.
Traders are pricing in a 95% rate hike in June, according to Investing.com’s Fed Rate Monitor Tool. The odds of a fourth rate in December, meanwhile, have decreased to about 39%.