InvestorQ : What did you gather from the minutes of the Fed meeting announced during the week?
Rutuja Nigam made post

What did you gather from the minutes of the Fed meeting announced during the week?

1 month ago

Here are some key takeaways from the Fed meeting minutes announced last week.

· Long term inflation would continue to be driven by supply chain challenges. Meanwhile, the labour shortages are resulting in higher manpower costs and pushing up inflation in a significant way. Largely, the labour slack is not allowing the higher rates to transmit into lower inflation and that is evident from the robust jobs data.

· Fed officials believe that rates may continue to rise until the consumer inflation comes down all the way to 2% or thereabouts. They will essentially wait for a confirmatory trend from the markets on the rates front. However, it is likely that once the inflation starts its downward journey, the Fed is likely to apply the brakes on rate hikes.

· According to the minutes, the rates hikes would almost entirely be front loaded in the year 2022 itself and only some minor tweaks would be carried forward to the 2023 year. However, the indication is that if growth becomes a priority, Fed may even be open to rate cuts. However, that does not look like a possibility at this juncture.

· Terminal rate projections have clearly moved higher from 4.6% to a range of 5.00-5.25%. Originally, the terminal rates were closer to 4%, but that has been continuously shifting up.

For India, these minutes open up a pandora’s box. Inflation is higher at 7.41% and IIP has contracted by -0.83% so we have to keep our fingers crossed.